USDD Docs
  • INTRODUCTION
    • What is the new version of USDD?
    • What is USDDOLD?
    • Why upgrade USDD?
    • Core Features
    • Collateral Asset Contract Addresses
  • Ecosystem Migration Progress
  • SYSTEM ARCHITECTURE
    • System Architecture
  • USER GUIDE
    • Getting Started
    • Open a Vault
    • Manage a Vault
    • Close a Vault
    • Risk Alert
    • Liquidation
    • Collateral Auction
    • PSM (Peg Stability Module)
    • Migrate
  • DEVELOPERS
    • Glossary
    • Core Contracts
      • Vat
      • Dog
      • Clip
      • Spot
      • Jug
      • Median
      • OSM
      • Proxy contract
      • PSM
      • Migrate
    • Deployment Addresses
    • Liquidation & Auction
      • Key Features of Liquidation
      • Example Process
      • Benefits
    • Oracle
  • GOVERNANCE
    • Overview
  • SECURITY
    • Secure Framework
    • Audits
  • LRGALS
    • Terms of Use
    • Privacy Policy
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  1. DEVELOPERS
  2. Liquidation & Auction

Key Features of Liquidation

Trigger Mechanism

  • The protocol continuously monitors CDPs to assess their collateralization ratio.

  • If the ratio falls below the minimum collateralization threshold, the liquidation process is initiated automatically.

Auction Process

  • Liquidated collateral is put up for auction to a valid bidder.

  • Bidders, often known as Keepers, compete to purchase the collateral, ensuring market-driven pricing.

Liquidation Fee

  • A liquidation fee is imposed on the user whose position is liquidated.

  • This liquidation fee is designed to discourage risky behavior and compensate the protocol for the added system risk.

Keeper Rewards

  • Keepers are incentivized with rewards for participating in the liquidation process.

  • Rewards typically include a portion of the liquidation fee and opportunities to acquire discounted collateral.

Debt Repayment

  • The proceeds from the auction are used to repay the outstanding USDD debt.

  • Any remaining collateral after repaying the debt and penalties is returned to the user.

Peg Stability Impact

  • Liquidation ensures that excessive debt does not destabilize the peg of USDD.

  • By swiftly resolving undercollateralized positions, the protocol maintains its financial health.

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Last updated 4 months ago