Redistribution
What is Redistribution?
Redistribution serves as a backup mechanism to handle liquidations when the Stability Pool is empty. It ensures that the protocol remains solvent by distributing the debt and collateral of under-collateralized TrenBoxes among all active TrenBoxes proportionally. This mechanism maintains the stability and reliability of the protocol, protecting user funds and encouraging responsible management of collateralized debt positions.
When redistribution occurs, the debt and collateral of the under-collateralized TrenBox are distributed among all remaining active TrenBoxes in the system. This redistribution is done proportionally based on the collateral amount of each active TrenBox
Redistribution ensures that the protocol can handle under-collateralized positions even when the Stability Pool is depleted, maintaining overall solvency
Example
Initial State
Assume there are three active TrenBoxes in the system:
TrenBox A: 10,000 trenUSD debt, 20 ETH collateral
TrenBox B: 20,000 trenUSD debt, 40 ETH collateral
TrenBox C: 30,000 trenUSD debt, 60 ETH collateral
Liquidation Event:
TrenBox D, with 15,000 trenUSD debt and 30 ETH collateral, becomes under-collateralized, and the Stability Pool is empty.
Redistribution Process:
The 15,000 trenUSD debt and 30 ETH collateral from TrenBox D are redistributed among the remaining active TrenBoxes (A, B, and C).
The total collateral in the system before redistribution is 120 ETH (20 + 40 + 60).
Proportional Distribution:
TrenBox A’s share of the total collateral is 20/120 = 1/6.
TrenBox B’s share is 40/120 = 1/3.
TrenBox C’s share is 60/120 = 1/2.
Debt and Collateral Allocation:
TrenBox A receives 1/6 of 15,000 trenUSD debt and 30 ETH collateral:
New debt: 10,000 + 2,500 = 12,500 trenUSD
New collateral: 20 + 5 = 25 ETH
TrenBox B receives 1/3 of 15,000 trenUSD debt and 30 ETH collateral:
New debt: 20,000 + 5,000 = 25,000 trenUSD
New collateral: 40 + 10 = 50 ETH
TrenBox C receives 1/2 of 15,000 trenUSD debt and 30 ETH collateral:
New debt: 30,000 + 7,500 = 37,500 trenUSD
New collateral: 60 + 15 = 75 ETH
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