During Recovery Mode, Positions with a collateral ratio below 150% can be liquidated.
Moreover, the system blocks borrower transactions that would further decrease the TCR. New DCHF may only be issued by adjusting existing Positions in a way that improves their collateral ratio, or by opening a new Position with a collateral ratio
>=150%. In general, if an existing Position's adjustment reduces its collateral ratio, the transaction is only executed if the resulting TCR is above
The Total Collateral Ratio or TCR is the ratio of the Dollar value of the entire system collateral at the current ETH:CHF price, to the entire system debt. In other words, it's the sum of the collateral of all Positions expressed in CHF, divided by the debt of all Positions expressed in DCHF.
The goal of Recovery Mode is to incentivize borrowers to behave in ways that promptly raise the TCR back above 150%, and to incentivize DCHF holders to replenish the Stability Pool.
Economically, Recovery Mode is designed to encourage collateral top-ups and debt repayments, and also itself acts as a self-negating deterrent: the possibility of it occurring actually guides the system away from ever reaching it. Recovery Mode is not a desirable state for the system.
While Recovery Mode has no impact on the redemption fee, the borrowing fee is set to
0%to maximally encourage borrowing (within the limits described above).
By increasing your collateral ratio to
150%or greater, your Position will be protected from liquidation. This can be done by adding collateral, repaying debt, or both.
Yes, you can be liquidated below
150%if your Position's collateral ratio is smaller than 150%. In order to avoid liquidation in Normal Mode and Recovery Mode, a user should keep their collateral ratio above
- ICR = Individual Collateral Ratio
- MCR = Minimum Collateral Ratio
- TCR = Total Collateral Ratio
- SP = Stability Pool
Redistribute all debt and collateral (minus ETH gas compensation) to active Positions.
100% < ICR < MCR & SP DCHF > Position debt
DCHF in the Stability Pool equal to the Position's debt is offset with the Position's debt. The Position's ETH collateral (minus ETH gas compensation) is shared between depositors.
100% < ICR < MCR & SP DCHF < Position debt
The total Stability Pool DCHF is offset with an equal amount of debt from the Position. A fraction of the Position's collateral (equal to the ratio of its offset debt to its entire debt) is shared between depositors. The remaining debt and collateral (minus ETH gas compensation) is redistributed to active Positions.
MCR <= ICR < 150% & SP DCHF >= Position debt
The Stability Pool DCHF is offset with an equal amount of debt from the Position. A fraction of ETH collateral with dollar value equal to
MCR <= ICR < 150% & SP DCHF < Position debt
ICR >= 150%
In Recovery Mode, liquidation loss is capped at
110%of a Position's collateral. Any remainder, i.e. the collateral above
110%(and below the TCR), can be reclaimed by the liquidated borrower using the standard web interface.
This means that a borrower will face the same liquidation “penalty” (
10%) in Recovery Mode as in Normal Mode if their Position gets liquidated.