DCNTRL Network Docs
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  • 👋Welcome to DCNTRL - The future of Stablecoins
    • Introduction to DCNTRL Protocol
  • DCNTRL Features
    • 💲USDEFI Stablecoin
      • 💰Minting / Redeeming USDEFI
      • 📈Maintaining the $USD Peg
      • 💸Earning in USDEFI Stability Pool
    • 💎DCNX Tokens
      • 🎁Earning DCNX
      • 📊DCNX Tokenomics
      • 🏦Earn Protocol Revenue
      • 💳How to Buy DCNX
    • 🛡️Ecosystem Stability
      • 🌊Liquidations
      • 🌡️Recovery Mode
  • User Guides
    • ⚡Getting Started with DCNTRL Protocol
      • 1️⃣Connecting Your Wallet
      • 2️⃣Getting BNB
    • 3️⃣Your Dashboard
    • 4️⃣Borrowing (Minting) USDEFI
      • ⚙️Managing your USDEFI Position
    • 5️⃣Start Earning with USDEFI
      • How to Stake USDEFI
      • How to Unstake From Stability Pool
    • 6️⃣Redeem USDEFI - Get BNB
    • 7️⃣Liquidating Bad Debt
      • ↪️How to Manually Liquidate Bad Debt
    • 🏆How to stake DCNX to earn Protocol Revenue
  • Useful Docs
    • 📃Smart Contract Audits
    • 📈DCNTRL Protocol Fees
    • Terms of Service
      • 🔒Privacy Policy
      • 🍪Cookie Policy
    • 🎨Brand Assets
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On this page
  • Introduction
  • What are Liquidations?
  • Types of Liquidations
  • How Liquidations Work
  • How am I compensated for liquidating a loan position?
  • Conclusion
  1. DCNTRL Features
  2. Ecosystem Stability

Liquidations

This page provides a detailed explanation of how liquidations work within the DCNTRL Protocol. It covers the two main types of liquidations—stability pool liquidations and user liquidations.

PreviousEcosystem StabilityNextRecovery Mode

Last updated 1 year ago

Introduction

In the DCNTRL Protocol, liquidations are a crucial mechanism to ensure the stability of the system and the safety of users' assets. They occur when the value of a user's collateral falls below a certain threshold, posing a risk to the solvency of the protocol. This page provides an in-depth look at how liquidations work within the DCNTRL ecosystem.

What are Liquidations?

Liquidations are a common mechanism in decentralized finance protocols to manage risk. In the DCNTRL Protocol, if a user's collateral ratio falls below 110%, their position may be liquidated. This means that their collateral is sold to repay their debt and maintain the stability of the system.

Types of Liquidations

There are two main types of liquidations within the DCNTRL ecosystem:

  1. Stability Pool Liquidations: The stability pool plays a crucial role in maintaining the health of the system. If a user's collateral falls below the required threshold, their position can be liquidated by the stability pool. This helps to maintain the peg of USDEFI and ensures the stability of the protocol.

  2. User Liquidations: In addition to the stability pool, other users of the protocol can also liquidate under-collateralized positions. This provides an additional layer of security for the protocol and incentivizes active participation in the ecosystem.

How Liquidations Work

When a user's collateral ratio falls below the minimum required level, their position becomes eligible for liquidation. The protocol then allows other users or the stability pool to liquidate these positions. The liquidator pays off the debt of the position and in return, receives a portion of the collateral. This mechanism ensures that the protocol remains solvent and that the value of USDEFI remains stable.

How am I compensated for liquidating a loan position?

loan position liquidations come with certain gas costs borne by the initiator. The cost per loan position has been minimized by executing batch liquidations of up to 160 - 185 loan positions.

To keep liquidations profitable even amidst surging gas prices, the protocol offers a gas compensation derived from the formula:

gas compensation = 50 USDEFI + 0.5% of loan position's collateral (BNB)

The 50 USDEFI is supported by a levy, while the variable 0.5% portion (in BNB) comes from the liquidated collateral, slightly diminishing the liquidation gain for Stability Providers.

Conclusion

Liquidations are an essential part of the risk management strategy of the DCNTRL Protocol. They ensure that the protocol remains solvent and that the value of USDEFI remains stable, even in volatile market conditions. By understanding how liquidations work, users can better manage their risk and make more informed decisions when using the protocol.

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