Liquidation
To ensure that the collateral fully supports the supply of all lending, Vaults with collateral ratios below 150% will be closed (liquidated). Initially, anyone can participate in liquidating Vaults with pending liquidation positions. When a Vault is liquidated, the liquidator must repay the debt and retrieve the corresponding collateral assets.
Below is an outline of the liquidation process for a position with collateral of 100 $ORDI and a borrowed loan of 0.15 $BTCX:
Initiate Liquidation: When the price drops below 225,000 SATS/ORDI and the collateral ratio falls below 150%, the position reaches the liquidation threshold and enters the liquidation state.
Collateral Auction: For the current collateral asset value of 22,500,000 sats (equivalent to 0.225 $BTC), a Dutch auction-style liquidation auction with a duration of 24 hours will commence. Bidders need to provide $BTCX to acquire the liquidated assets, with a starting price of 0.225 $BTCX and an ending price of 0.165 $BTCX. The auction price decreases linearly over time. Any successful bidder will act as the liquidator during the collateral auction process. For example, if the successful bid price is 0.18 $BTCX, 0.15 $BTCX will be returned to the protocol's lending account and burned. In comparison, 0.03 $BTCX will be deposited into the protocol's insurance fund to mitigate potential bad debt risks.
Execute Liquidation: Concurrent with the initiation of liquidation, the oracle will reveal a secret value. This secret value can complete the signatures of the participants (borrower and protocol) to execute the liquidation. When the liquidator executes the position liquidation, they will receive a reward from Liquidation Penalty Funds, which will be directly deducted from the liquidation cost in the form of $BTCX. The liquidation execution logic relies on the execution script (CET) specified by the DLC, meaning assets can only be reattributed if the oracle price is below the liquidation price point.
Close DLC: After revealing the secret, the price oracle automatically closes the corresponding DLC process.
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