7️⃣Liquidating Bad Debt

Introduction

In the DCNTRL Protocol, maintaining the stability and health of the ecosystem is of utmost importance. One of the ways this is achieved is through the liquidation of loan positions that fall below the Minimum Collateral Ratio of 110%. This process is not only essential for the protocol's stability but also provides an opportunity for users to earn rewards. This guide will walk you through the process of identifying and liquidating bad debt.

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Who Can Liquidate Loan Positions?

Any participant in the DCNTRL ecosystem can liquidate a loan position if it falls below the Minimum 110% Collateral Ratio. This ensures that the protocol remains robust and resilient, even when individual loan positions become under-collateralized.

How Does Liquidation Work?

When a loan position's Collateral Ratio falls below 110%, it becomes eligible for liquidation. Any user can initiate this process, which involves repaying a portion of the loan position's debt and in return, receiving a portion of its collateral. The liquidated debt is then added to the Stability Pool, while the remaining collateral is returned to the user who initiated the liquidation.

What Compensation do you get for Liquidating Bad Debt?

Initiating a liquidation incurs certain gas costs. To ensure that liquidation remains profitable for users, the DCNTRL Protocol provides a gas compensation for each liquidation.

This compensation is calculated using the formula:

Gas Compensation = 50 USDEFI + 0.5% of the loan position's collateral (BNB) The 50 USDEFI is funded by a levy, while the variable 0.5% portion (in BNB) comes from the liquidated collateral. This slightly diminishes the liquidation gain for Stability Providers but ensures that liquidators are adequately compensated for their efforts.

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How to Manually Liquidate Bad Debt:

To initiate the liquidation process follow the guide 👇

↪️How to Manually Liquidate Bad Debt