Recovery Mode
Recovery Mode kicks in when the Total Collateral Ratio (TCR) of the system falls below 150%. During Recovery Mode, Troves with a collateral ratio below 150% can be liquidated. Moreover, the system blocks borrower transactions that would further decrease the TCR. New OUSD may only be issued by opening a new Trove with a collateral ratio>=150%. In general, if an existing Trove's adjustment reduces its collateral ratio, the transaction is only executed if the resulting TCR is above 150%.
What is the Total Collateral Ratio?
The Total Collateral Ratio or TCR is the ratio of the Dollar value of the entire system collateral at the current DYM:USD price, to the entire system debt. In other words, it's the sum of the collateral of all Troves expressed in USD, divided by the debt of all Troves expressed in OUSD.
What is the purpose of Recovery Mode?
The goal of Recovery Mode is to incentivize borrowers to behave in ways that promptly raise the TCR back above 150%, and to incentivize OUSD 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 guides the system away from ever reaching it. Recovery Mode is not a desirable state for the system.
How can I make my Trove safe in Recovery Mode?
By increasing your collateral ratio to 150% or greater, your Trove will be protected from liquidation. This can be done by adding collateral, repaying debt, or both.
Can I be liquidated if my collateral ratio is below 150% in Recovery Mode?
Yes, you can be liquidated below 150% in Recovery Mode if your Trove's collateral ratio is below that level. In order to avoid liquidation regardless of system mode, a user should keep their collateral ratio above 120%.
How do liquidations work in Recovery Mode?
ICR = Individual Collateral Ratio MCR = Minimum Collateral Ratio (120%) TCR = Total Collateral Ratio (150%) SP = Stability Pool
ICR <=100%
Redistribute all debt and collateral to active Troves.
100% < ICR < MCR & SP OUSD > Trove debt
OUSD in the Stability Pool equal to the Trove's debt is offset with the Trove's debt. The Trove's DYM collateral is shared between depositors.
100% < ICR < MCR & SP OUSD < Trove debt
The total Stability Pool OUSD is offset with an equal amount of debt from the Trove. A fraction of the Trove's collateral (equal to the ratio of its offset debt to its entire debt) is shared between depositors. The remaining debt and collateral is redistributed to active Troves.
MCR <= ICR < 150% & SP OUSD >= Trove debt
The Stability Pool OUSD is offset with an equal amount of debt from the Trove. A fraction of DYM collateral with a dollar value equal to 1.2 * debt is shared between depositors. Nothing is redistributed to other active Troves. Since its ICR was > 1.2, the Trove has a remainder of collateral, which is sent to CollSurplusPool and is claimable by the borrower. The Trove is closed.
MCR <= ICR < 150% & SP OUSD < Trove debt
Do nothing.
ICR >= 150%
Do nothing.
How much of a Troves collateral can be liquidated in Recovery Mode?
In Recovery Mode, liquidation loss is capped at 120% of a Trove's collateral. Any remainder, i.e. the collateral above 120% (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" (20%) in Recovery Mode as in Normal Mode if their Trove gets liquidated.
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