Recovery Mode & Relevant Ratios

As a user, it is important to understand how to keep your position healthy and how to maintain a level of liquidation risk you are comfortable with.

Here are some important metrics you must be aware of:

Minimum Collateral Ratio (MCR)

The minimum amount of collateral that can back a user’s position for each asset.

Total Collateral Ratio (TCR)

The ratio of the total dollar amount in collateral in the protocol at the current price, to its total debt. Each collateral asset has a different TCR, they are siloed and managed separately.

Critical Collateral Ratio (CCR)

The threshold at which, when crossed, triggers recovery mode.

When the Total Collateral Ratio (TCR) falls below the Critical Collateral Ratio (CCR), recovery mode gets turned on: TCR < CCR → Recovery Mode Active

Recovery Mode

When active, any position below the CCR may be liquidated. Liquidations are ordered starting with the position that is least collateralized and ending with the most collateralized. Recovery mode is active until the TCR is above the CCR. Liquidation happens at the MCR and the user keeps the difference.

Example

You have opened a position with WETH. The TCR of WETH drops to 110% – below the CCR of 120%, recovery mode gets turned on. Your collateral ratio at this time is 115% and you are at risk of being liquidated. If you get liquidated, the liquidation will occur at the MCR of 108% and you will be able to claim the difference of (115 – 108) = 7% in collateral.