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Recovery Mode kicks in when the Total Collateral Ratio (TCR) of the system falls below
During Recovery Mode, Troves with a collateral ratio below 130% can be liquidated.
Moreover, the system blocks borrower transactions that would further decrease the TCR. New USDE may only be issued by adjusting existing Troves in a way that improves their collateral ratio, or by opening a new Trove with a collateral ratio
>=130%. In general, if an existing Trove's adjustment reduces its collateral ratio, the transaction is only executed if the resulting TCR is above
The Total Collateral Ratio or TCR is the ratio of the Dollar value of the entire system collateral, to the entire system debt. In other words, it's the sum of the collateral of all Troves expressed in USD, divided by the debt of all Troves expressed in USDE.
The goal of Recovery Mode is to incentivize borrowers to behave in ways that promptly raise the TCR back above 130%, and to incentivize USDE holders to replenish the Stability Pool.
Economically, Recovery Mode is designed to encourage collateral top-ups and debt repayments, and also itself acts as a self-negating deterrent: the possibility of it occurring actually guides the system away from ever reaching it. Recovery Mode is not a desirable state for the system.
By increasing your collateral ratio to
130%or greater, your Trove will be protected from liquidation. This can be done by adding collateral, repaying debt, or both.
Yes, you can be liquidated below
130%if your Trove's collateral ratio is smaller than 130%. In order to avoid liquidation in Normal Mode and Recovery Mode, a user should keep their collateral ratio above
- ICR = Individual Collateral Ratio
- MCR = Minimum Collateral Ratio
- TCR = Total Collateral Ratio
- SP = Stability Pool
In Recovery Mode, liquidation loss is capped at
110%of a Trove's collateral. Any remainder, i.e. the collateral above
110%(and below the TCR), can be reclaimed by the liquidated borrower using the standard web interface.
This means that a borrower will face the same liquidation “penalty” (
10%) in Recovery Mode as in Normal Mode if their Trove gets liquidated.