110%of the borrowed loans (taking into account the value of the Liquidation Reserve) to compensate the Liquidators and the Stability Providers. However, the user will still be able to keep the full amount of the stablecoin borrowed, excluding the Liquidation Reserve. Once the liquidation process is completed, the liquidated person will be able to withdraw the remaining collateral.
$2,000 worth of AVAX, this includes the
20 aUSDthat has been set aside as Liquidation Reserve. If the total value of her AVAX collateral drops, resulting in the C-Ratio for Alice's
aUSDloans to fall below the system's required MCR
e.g., 180%, a Liquidation Event will be triggered. She will lose
$1,100worth of AVAX (price taken at the time of liquidation), and
20 aUSDfor which she deposited to open the Vault. Alice can hold on to the remaining
1,000 aUSD - 20 aUSD Liquidation Reserve = 980 aUSDloans, and she will be able to retrieve the remaining AVAX collateral when the liquidation process has been completed. The remaining value in Alice's Vault will be:
$2000 worth of AVAX - $1,100 worth of AVAX + 980 aUSD = $1,880, incurring a loss of
$2,000 - $1,880 = $120.
180%. To compensate for the Liquidators' effort, they will receive the
$20stablecoin Liquidation Reserve and
0.5%of the liquidated collateral as rewards.
99.5%of liquidated collateral is transferred to the Stability Pool, while the remaining
0.5%will be allocated to Liquidators as compensation for their liquidation effort. As a result of this process, Stability Providers will lose their proportionate share of the stablecoins, but gain on their proportionate share of liquidated collateral. Stability Providers are able to claim their rewards and withdraw their deposits at any time.
10,000 aUSDin a Stability Pool that contains
$1,000,000worth of stablecoins, resulting in a
1%share for Alice in the Stability Pool. Suppose the current price of AVAX is
$50, and there is a Vault with
28,000 aUSDloans (including Liquidation Reserve) and
1,000AVAX. Because the resulting C-Ratio for the Vault is
179%- lower than the required Minimum Collateralization Ratio set at
180%, the Vault will be liquidated. The resulting liquidation requirement will be
28,000 aUSD * 110% = 30,800 aUSDworth of AVAX, translating to
$30,800 / $50 = 616 AVAX, assuming a 1:1 stablecoin price peg (see details on The USD Soft Peg) .
99.5%of the collateral
616 AVAX * 99.5% = 613 AVAXwill be transferred to the Stability Pool, the remaining collateral and the
20 aUSDLiquidation Reserve will be allocated to the Liquidator.
1%, she will carry
1%of the undercollateralized debt burden
1% * 28,000 aUSD = 280 aUSD. As compensation, she will also be allocated
1%of the liquidated collateral that's allocated to the Stability Pool
1% * 613 AVAX = 6.13 AVAX, resulting in a net gain of
$50 * 6.13 AVAX - 280 aUSD = $26for Alice.
180%at default, and will always be kept above
100%, it is highly likely that Stability Providers will generate a positive yield.
100%too fast due to a sharp price drop in the underlying collateral. In addition, Stability Providers may incur an impermanent loss during liquidation if the price of the stablecoin is trading above
$1. However, as prices of OINDAO's stablecoins will always aim to return to the 1:1 peg, losses will only become permanent if the Stability Provider decides to withdraw and sell the stablecoin deposit before it returns to the peg.