v1 Liquidations

Triggering Liquidation

Liquidations are triggered when a TrenBox's LTV surpasses the LT of the module. This can happen due to a decrease in the value of the collateral or an increase in the debt trenUSD.

Anyone can trigger a liquidation by calling the liquidation function on the TrenBox that is under-collateralized.

The liquidation of TrenBoxes is connected with certain gas costs that the initiator must cover. The cost per TrenBox was reduced by implementing batch liquidations of up to 25 TrenBoxes but to ensure that liquidations remain profitable even in times of soaring gas prices the protocol offers a gas compensation given by the following formula:

f.g.; gas compensation = 300 TrenUSD + 0.5% of TrenBox's collateral

The 300 TrenUSD is funded by a Liquidation Reserve that users deposit into when opening their TrenBox. The 0.5% part comes from the liquidated collateral, slightly reducing the liquidation gain for Stability Providers.

Liquidation process

The Stability Pool is the primary mechanism for handling liquidations. It holds trenUSD deposited by users (Stability Providers) and uses this trenUSD to repay the debt of liquidated TrenBoxes. When a TrenBox is liquidated, the Stability Pool burns an amount of trenUSD equal to the TrenBox debt and receives the collateral in return.

When a TrenBox is liquidated, the following steps occur:

  • Debt Repayment: An amount of trenUSD equal to the debt of the liquidated TrenBox is burned from the Stability Pool.

  • Collateral Transfer: The entire collateral of the liquidated TrenBox is transferred to the Stability Pool.

Distribution to Stability Providers

Stability Providers in the Stability Pool lose a pro-rata share of their trenUSD deposits corresponding to the amount of debt repaid.

In exchange, they receive a pro-rata share of the liquidated collateral at a discount. Stability providers are required to claim the liquidated collateral.

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