Liquidations

How do Liquidations work?

Troves get liquidated if the LTV goes above the maximum value (90.91% for Stables and 83.33% for BTC).

USDaf uses Stability Pools as its primary liquidation mechanism to absorb liquidated debt and collateral. Each borrow-market has its own dedicated Stability Pool earning liquidation gains (in the respective collateral) in exchange for burning debt.

Just-In-Time liquidations and a redistribution of debt and collateral across borrowers of the same market handle liquidations as a last resort when the Stability Pool is empty.

A liquidated borrower usually incurs a penalty of 5% and will be able to claim the remaining collateral after liquidation.

A special case is when a Redistribution is necessary, then the loss amounts to 10% of the debt (at most). That corresponds to a max. loss of 9.09% expressed in terms of collateral.

How am I compensated for liquidating a Trove?

The liquidation of Troves is connected with certain gas costs which the initiator has to cover. The protocol offers a gas compensation given by the following formula:

0.0375 WETH + min(0.5% trove_collateral, 2_units_of_BTC_or_Stable)

The 0.0375 WETH is funded by a refundable gas deposit while the variable 0.5% part comes from the liquidated collateral, slightly reducing the liquidation gain for Stability Providers.

What is the max Loan-To-Value?

That depends on the collateral type used.

Yield-Bearing Stablecoins has a max LTV of 90.91%,

Bitcoin (wBTC/tBTC/cbBTC) has a max LTV of 83.33%.

What is the refundable gas deposit?

To open a new Trove, the protocol requires a liquidation reserve of 0.0375 ETH regardless of the chosen collateral, which is set aside to cover the gas costs of a potential liquidation. The deposit is returned when the Trove is closed by the user (including upon redemptions).

How much will I pay for a loan?

In Liquity V2, there are no upfront fees. Instead, users pay interest on an ongoing basis, making it suitable for short-term loans as well.

The interest paid is determined by the rate set by the user. For example, if a user borrow 10,000 USDaf at a 5% interest rate, that user pays ~500 USDaf in interest after one year. This interest is added to the outstanding debt.