CDP liquidations

vault liquidation to ensure maintenance of system c-Ratios
as a collateral backed debt issuance platform, it is important that vault and system collateral is maintained at appropriate levels to back any fxToken debt; ensuring each remains representative of their underlying currencies face value. the core principles, underpinning the protocol liquidation process are;
  • if the collateral value, or c-Ratio, of a vault falls below its minimum c-Ratio, that vault is deemed to be 'at risk' or "underwater'. In this state it can be subject to a 1:1 redemption call on its collateral by fxToken holders.
    • this mechanism ensures that in the case an fxToken trades at a discount to its face value, an arbitrage opportunity exists, thus creating an incentive to drive it back to parity.
*only collateral from vaults that have a current c-Ratio < min c-Ratio can be redeemed against.
redemption contraction can be accessed through arbiscan.
  • if a vault's c-Ratio falls below its liquidation trigger it will automatically be subject to a liquidation process to repay excessive debt and bring the collateral ratios back to acceptable limits.
    • makes use of its fxKeeper pools to ensure that liquidation is promptly triggered and executed.
vaults are liquidated when the c-Ratio falls below 160%

the liquidation process

  1. 1.
    when a vault falls below it's c-Ratio liquidation trigger, liquidation begins.
  2. 2.
    sufficient vault collateral is sold (largest position to smallest holdings) to repay enough fxToken debt and return the c-Ratio to its required minimum plus a 10% buffer.
  3. 3.
    a liquidation fee is the charged to the vault being liquidated. this fee is disbursed to protocol and the relevant fxKeeper pool that funded the liquidation. *any accrued $FOREX rewards for that vault are forfeited; transferred to the fxKeeper pool and protocol.