Liquidations
A brief description of what liquidations are, the liquidation process, threshold, and incentives for liquidators.
Last updated
A brief description of what liquidations are, the liquidation process, threshold, and incentives for liquidators.
Last updated
To ensure that the entire stablecoin supply remains fully backed by collateral, Positions which fall under the minimum collateral ratio will be closed (liquidated). The debt of the Position is canceled and absorbed by the Backstop Pool and its collateral distributed among Backstop Providers. The owner of the Position still keeps the full amount of USDx borrowed but loses value overall; hence, it is critical to always keep your health ratio above the MCR (ideally above CCR.)
Anybody can liquidate a Position as soon as it drops below the Minimum Collateral Ratio. The initiator receives a gas compensation (200 USDx + 0.5% of the Position's collateral) as reward for this service.
The liquidation of Positions is connected with certain gas costs which the initiator has to cover. The cost per Position is reduced by implementing batch liquidations of Positions but with the aim of ensuring that liquidations remain profitable even in times of soaring gas prices the protocol offers a gas compensation given by the following formula:
gas compensation = 200 USDx + 0.5% of Position's collateral
The 200 USDx is funded by a Liquidation Reserve while the variable 0.5% part comes from the liquidated collateral, slightly reducing the liquidation gain for Backstop Providers.
