Liquidations
Protocol solvency protection
Last updated
Protocol solvency protection
Last updated
This documentation is a work in progress!
Anyone can liquidate a position under the by repaying debt of a position, increasing its . The repayment value, plus a liquidation incentive, is seized from the collateral deposits and sent to the liquidator. The liquidator decides which asset to repay and the collateral asset to seize in return.
It is the final backstop for protocol solvency, ensuring all are . A CDP with collateral ratio below the liquidation threshold is considered underwater and subject to liquidation. The protocol incentivizes anyone to perform these liquidations, as it does not do so itself.
Liquidation incentives are added into the seized value during a liquidation, this value is taken from any of the deposited collateral assets in the position.
Both CDP models have their own liquidation process, the difference being that are targeting the assets of an account while the targets the pooled assets.
The maximum collateralization ratio (MLR) defineds the maximum collateralization ratio the position ends up in after a liquidation. This is equal or higher than the LT. It limits the seizable value to the minimum required to prevent unnecessary large liquidations.
The protocol limits liquidations by calculating a maximum liquidatable value (MLV) for a CDP. The value is derived from the , resulting in the liquidated CDP's being equal to the MLR after the liquidation.