🌊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.
Last updated
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.
Last updated
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.
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.
There are two main types of liquidations within the DCNTRL ecosystem:
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.
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.
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.
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.
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.
