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Liquidations & Recovery Mode

If your ICR drops below the branch's MCR, anyone can liquidate your trove. The protocol's goal is to never carry undercollateralized debt for long, the liquidation incentives are designed to clear it within blocks of it happening, not within hours.

The two ratios you need to know​

  • ICR: your trove's individual collateral ratio: collateral_value_in_USD / debt_in_RD.
  • MCR: the branch minimum collateral ratio. Typically 110%, per-branch.

If ICR < MCR, your trove is liquidatable. The price oracle is the source of truth on collateral value; if oracle price drops, you can become liquidatable without doing anything wrong.

Two more ratios live at the branch level:

  • TCR: total collateral ratio across all troves in the branch.
  • CCR: critical collateral ratio (typically 150%). When branch TCR drops below CCR, the branch enters recovery mode.
  • SCR: shutdown collateral ratio (typically 110%). When branch TCR drops below SCR, the branch can be shut down.

Liquidation paths​

When your trove is liquidated, the protocol tries to clear your debt using two paths in order:

1. Offset against the Stability Pool​

The branch's Stability Pool holds RD that depositors have committed to absorb undercollateralized debt. The protocol burns RD from the pool equal to your debt and sends your collateral to the pool. Depositors split that collateral pro-rata in proportion to their deposits.

The Stability Pool gets your collateral at a discount to the oracle price, that's the depositor incentive. Your trove is closed.

2. Redistribution to other troves​

If the Stability Pool can't cover your debt (empty pool, or partial coverage), the remainder is redistributed to other troves on the same branch: each surviving trove inherits a pro-rata share of the residual debt and collateral. Your collateral effectively becomes their collateral; their effective ICR drops slightly.

This is the fallback that keeps the protocol solvent without admin intervention.

What you lose​

Whichever path the protocol takes, your trove is closed and:

  • All your collateral leaves the trove (some to the Stability Pool, some redistributed, some to the liquidator as gas comp).
  • All your debt is gone.
  • The 200 RD gas-compensation reserve is paid to the liquidator (not you).
  • A small fraction of your collateral (a few basis points) is also paid to the liquidator as a kicker.

The economic effect: you forfeit the gas-comp reserve and the liquidator kicker. The rest of your collateral covered the debt at MCR-or-below valuations. Whether you net out positive, zero, or negative depends on whether ICR was right at MCR (close to break-even) or well below it (you take losses).

Recovery Mode​

If branch TCR drops below CCR (typically below 150%), the branch enters recovery mode. Rules tighten:

  • Liquidations get more aggressive. Any trove with ICR < TCR is liquidatable, even if it's above MCR. The protocol prioritizes restoring branch TCR over preserving individual troves.
  • Opens and adjustments must keep TCR healthy. New troves must open at ICR ≥ CCR, not just MCR. Existing troves can only adjust in ways that don't worsen TCR.
  • You can still repay or close. Anything that improves your ICR is allowed.

Recovery mode is a self-clearing state: as soon as enough liquidations and repayments restore TCR above CCR, the branch returns to normal rules. There's no governance decision involved.

SCR and branch shutdown​

If branch TCR drops below SCR (typically below 110%), the branch is in deeply distressed territory and can be shut down via BorrowerOperations.shutdown() or Aggregator.shutdownBranches(). Shutdown is a permanent state for that branch: no new borrows, no new Stability Pool emissions, but redemptions and liquidations continue on a discount schedule. See Shutdown machinery.

What to do as a borrower​

  • Keep buffer. A trove at exactly MCR can be liquidated by any normal-sized oracle move. A trove at 150% buffer can survive most days.
  • Watch branch TCR, not just your own ICR. If TCR is approaching CCR, the branch is one bad print away from recovery mode, and recovery mode can liquidate your above-MCR trove.
  • Top up early. addColl is cheap; getting liquidated isn't.
  • If you're near MCR and the price is moving against you, repay debt or top up collateral. Closing the trove cleanly is always an option as long as you can source the RD.

What if I have collateral surplus after a liquidation?​

In some paths (full redemption to zero, recovery-mode liquidations with extra collateral above debt + comp) you may have a positive collateral remainder owed to you. Call BorrowerOperations.claimCollateral() to pull it.

Deep dive​

Liquidation paths covers offset/redistribute math, mixed liquidations, mini-dwarf sweeps, and the recovery-mode rule set in detail.