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Difference between revisions of "Liquity"
Content for sub-sections: Recovery Mode + Dual Oracle System + Liquidations
TokenBrice (talk | contribs) (Stability Pool) |
TokenBrice (talk | contribs) (Content for sub-sections: Recovery Mode + Dual Oracle System + Liquidations) |
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=== Liquidations === | === Liquidations === | ||
Liquidations are a control mechanism triggered when needed to ensure the entire LUSD stablecoin supply remains fully backed by sufficient collateral. | |||
Troves that fall under a minimal collateralization ratio of 110% (or 150% in recovery mode) can be liquidated. The funds of the Stability Pool (>300M LUSD as of April 2022) are critical in this operation. Here is a rough outline of the procedure | |||
# A given trove enter the liquidation zone (<110% collateralization ratio) | |||
# Once the liquidation is triggered, the debt of the Trove is canceled and absorbed by the Stability Pool. | |||
# The corresponding collateral is distributed to the suppliers of the Stability Pool. | |||
# The owner of the Trove still keeps the full amount of LUSD borrowed but loses ~10% value overall. | |||
# Anyone can trigger liquidations, and it can even be lucrative. The initiator receives a gas compensation (200 LUSD + 0.5% of the Trove's collateral) as a reward for this service. | |||
=== Stability Pool === | === Stability Pool === | ||
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=== Recovery Mode === | === Recovery Mode === | ||
The Recovery Mode is an extreme measure and a deterrent to ensure borrowers behave responsibly. It is triggered when the Total Collateral Ratio (of the whole platform = all troves) goes below 150%. | |||
Once the Recovery Mode is triggered, any safe below a collateralization ratio of 150% can be liquidated. During recovery mode, user actions are restricted: any trove-related action that lowers the collateralization ratio below 150% is blocked. New troves can only be opened if they have a ratio >150% and 0% borrowing fees.<ref>https://docs.liquity.org/faq/recovery-mode#what-is-recovery-mode</ref> | |||
The Recovery Mode is an emergency mechanism and not a desirable state for the system. Its purpose is to restore the collateralization level of the whole platform to a sustainable range. The Recovery Mode also acts self-negating deterrent: the possibility of it occurring actually guides the system away from ever reaching it. | |||
=== Redemption === | === Redemption === | ||
=== Dual Oracles + Fallback system === | === Dual Oracles + Fallback system === | ||
The oracle (price feed) is the source of truth used by lending services to determine whether or not a position is sufficiently collateralized. Since the system makes decisions based on this information, it is critical. With Liquity the base situation is even harsher because the code is immutable, meaning that the oracle too cannot be changed. | |||
To address this while maximizing the resiliency of the protocol, Liquity implements a dual oracle mechanism with a fallback logic. | |||
The base oracle is the Chainlink ETH/USD price feed<ref>https://data.chain.link/ethereum/mainnet/crypto-usd/eth-usd</ref>. However, there is a fallback to the Tellor ETH/USD price feed<ref>https://tellor.io/</ref> if the following three (extreme) conditions are met: | |||
# Chainlink price has not been updated for more than 4 hours | |||
# Chainlink response call reverts, returns an invalid price or an invalid timestamp | |||
# The price change between two consecutive Chainlink price updates is >50%. | |||
=== Front-end decentralization === | === Front-end decentralization === | ||