During Recovery Mode, Troves with a collateral ratio below 150% can be liquidated.
Moreover, the system blocks borrower transactions that would further decrease the TCR. New LUSD 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
>=150%. 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 at the current ETH:USD price, 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 LUSD.
The goal of Recovery Mode is to incentivize borrowers to behave in ways that promptly raise the TCR back above 150%, and to incentivize LUSD 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
150%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
150%if your Trove's collateral ratio is smaller than 150%. 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.