🚨 Liquidations

Overview 🌐

Understanding Liquidations

• Liquidations occur when Collateralized Debt Positions (CDPs) become undercollateralized. This process ensures the stability and solvency of the protocol.

Liquidation Process ⚙️

Two-Step Procedure: Liquidations in the Indigo Protocol are automated by bots but the actual two-step process is as follows.

• Freeze the CDP: Once frozen, the CDP is inaccessible to its former owner, who forfeits all access and rights to it.

• Liquidate the CDP: The CDP's debt is settled by burning iAssets from a Stability Pool, and its collateral is proportionally distributed to Stability Pool stakers.

Incentive to Liquidate 📈

• Stability Pool stakers are motivated to take part in Stability Pool to liquidate CDPs as they can earn a share of the CDP's collateral. Typically, the value of the earned collateral may exceed the value of the canceled debt, especially when a liquidated CDP has a collateral value above 100% of the iAsset value.

Fees 💸

• Liquidation Processing Fee: A 2% fee on liquidated iAssets, replacing the previous collateral fee, ensuring a consistent revenue stream during market downturns.

• Interest Fee: Upon liquidation of a CDP, the interest owed is paid out of the collateral.