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  • Recovery Mode Triggers and Functionality
  • Liquidation Process in Recovery Mode
  • Strategies for Users in Recovery Mode
  1. Protocol

Recovery Mode

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Last updated 6 days ago

Bit Protocol incorporates a Recovery Mode to ensure the system's stability during periods of high volatility or when the overall health of the platform is at risk. It is a crucial mechanism that acts as a safeguard during times of heightened financial stress or systemic risk. By adjusting operational parameters based on the overall health of the platform, Bit Protocol ensures its resilience and long-term stability. This section explains the Recovery Mode's functionality, its triggering conditions, and its impact on the ecosystem.

Recovery Mode Triggers and Functionality

  • Global Total Collateral Ratio (GTCR): Recovery Mode is activated when the GTCR falls below a threshold of 180%. The GTCR is a measure of the overall health of the system.

GTCR=∑DebtinBitUSD∑CollateralValueinUSD​×100GTCR= ∑Debt in BitUSD∑Collateral Value in USD ​ ×100%GTCR=∑DebtinBitUSD∑CollateralValueinUSD​×100

  • Restrictions on Vaults: When Recovery Mode is active, certain operations are restricted to prevent actions that might further decrease the GTCR.

  • Impact on Borrowing: New BitUSD can only be minted if it improves the collateral ratio of an existing vault or if a new vault is opened with a collateral ratio greater than or equal to 180%.

  • Exiting Recovery Mode: An improvement in GTCR leads to the deactivation of Recovery Mode once the GTCR rises above the set threshold of 180%.

Liquidation Process in Recovery Mode

  • Modified Liquidation Criteria: In Recovery Mode, vaults with a collateral ratio below the GTCR are subject to liquidation even if the collateral ratio is above 150%.

  • Liquidation Mechanics: The specifics of liquidation in Recovery Mode vary based on the individual collateral ratio (ICR) of the vaults and the status of the Stability Pool.

If ICR<GTCR and SP BitUSD≥Vault Debt, then Liquidate

  • Impact on Liquidations: In Recovery Mode, vaults with collateral ratios below GTCR are liquidation-prone. A ratio over 180% avoids liquidation, with losses capped at 120% of collateral.

Strategies for Users in Recovery Mode

  • Maintaining High Collateral Ratios: Users are encouraged to maintain collateral ratios above the GTCR to avoid liquidation.

  • Active Monitoring: Users should actively monitor the status of their vaults, especially in volatile market conditions to ensure they are not prone to liquidation.