Liquidations of Vaults

Partial Liquidations

The Liquidation Protocol will try to liquidate all the outstanding debt in a Vault if it does not have the minimum collateral ratio required. However, if the Solution Pool cannot provide enough SALT to cover the entire debt of the vault, the protocol will attempt to pay off as much of the debt as possible, then sell the seized collateral back for SALT, and return that SALT to the pool.

The Protocol will once again search for eligible liquidations - it is possible that the partial liquidation may have brought a Vault back into compliance with the minimum collateral ratio required, if so, the remaining debt and collateral will not be liquidated unless it again violates the minimum collateral ratio.

Liquidation Premium

The Liquidation Premium will be set to the lesser of 10% or (the current collateral ratio - 1).

Collateral liquidated from a vault will be calculated as follows:

(Debt Repaid) * (1 + Liquidation Premium)

In the event that a Vault becomes undercollateralized, the Liquidation Premium will become negative. In such a scenario, collateral liquidated from the vault will be of lesser value than the debt repaid.

Liquidation Share

Of the premium generated during liquidation, 20% will go to platform treasury while 80% will be sold back into SALT and go back into the Solution Pool.

Undercollateralized Vaults

In the event that liquidation premiums are negative, there will be no 20% platform share and all collateral will be sold back into SALT to go back into the Solution Pool.

Subject to a governance vote, accumulate SALT and collateral in the protocol Treasury can be used to compensate the Solution Pool.