Recovery Mode
Last updated
Last updated
Recovery Mode kicks in when the Total Collateral Ratio (TCR) of the system falls below 150%.
During Recovery Mode, Vaults with a collateral ratio below 150% can be liquidated. Moreover, the system blocks borrower transactions that would further decrease the TCR. New TAL may only be issued by adjusting existing Vaults in a way that improves their collateral ratio, or by opening a new Vault with a collateral ratio >= 150%.
In general, if an existing Vaultt's adjustment reduces its collateral ratio, the transaction is only executed if the resulting TCR is above 150%.
The Total Collateral Ratio or TCR is the ratio of the Dollar value of the entire system collateral at the current BTC:USD price, to the entire system debt. In other words, it's the sum of the collateral of all Vaults expressed in USD, divided by the debt of all Vaults expressed in TAL.
The goal of Recovery Mode is to incentivize borrowers to behave in ways that promptly raise the TCR back above 150%, and to incentivize TAL holders to replenish the Stability Pool.
Economically, Recovery Mode is designed to encourage collateral top-ups and debt repayments, and it also 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 ).
By increasing your collateral ratio to 150% or greater, your Vault will be protected from liquidation. This can be done by adding collateral, repaying debt, or both.
150% in Recovery Mode? Yes, you can be liquidated below 150% in Recovery Mode if your Vault’s collateral ratio is below that level. In order to avoid liquidation regardless of system mode, a user should keep their collateral ratio above 150%
ICR = Individual Collateral Ratio
MCR = Minimum Collateral Ratio
TCR = Total Collateral Ratio
SP = Stability Pool
Condition
Liquidation Behavior
ICR <=100%
Redistribute all debt and collateral to active Vaults.
100% < ICR < MCR & SP TAL > Vault debt
TAL in the Stability Pool equal to the Vault's debt is offset with the Vault's debt. The Vault's ckBTC collateral is shared between depositors.
100% < ICR < MCR & SP TAL < Vault debt
The total Stability Pool TAL is offset with an equal amount of debt from the Vault. A fraction of the Vault's collateral (equal to the ratio of its offset debt to its entire debt) is shared between depositors. The remaining debt and collateral are redistributed to active Vaults.
MCR <= ICR < 150% & SP TAL >= Vault debt
The Stability Pool TAL is offset with an equal amount of debt from the Vault. A fraction of ckBTC collateral with a dollar value equal to 1.1 * debt is shared between depositors. Nothing is redistributed to other active Vaults. Since its ICR was superior to 110%, the Vault has a collateral remainder, which is sent to the CollSurplusPool and is claimable by the borrower. The Vault is closed.
MCR <= ICR < 150% & SP TAL < Vault debt
Do nothing.
ICR >= 150%
Do nothing.
In Recovery Mode, liquidation loss is capped at 110% of a Vaults'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 Vault gets liquidated.