Liquidations
Last updated
Last updated
Liquidation of Risky Rubix Vaults:
To ensure there is always enough collateral in the Rubix Protocol to cover the value of all outstanding debt (the amount of TAD outstanding valued at the Target Price (1 USD soft peg)), any Rubix Vault deemed too risky (according to parameters established by Rubix Governance) is liquidated through automated Rubix Protocol auctions. The Protocol makes the determination after comparing the Liquidation Ratio (Liquidation Ratio is the collateral-to-debt ratio at which point a Vault becomes susceptible to Liquidation) to the current collateral-to-debt ratio of a Vault. Users can maintain a position consisting of several vaults with different liquidation ratios and therefore risk profiles
Liquidation Ratio:
The liquidation ratio (collateral-to-debt ratio) ensures that every TAD is always backed by the collateral value in our vaults. When our vaults fall below the liquidation ratio, they enter the liquidation queue where liquidators can either force close them to earn a 3% fee or put the vault in an auction state where users can bid on the contents of the vaults. The initial liquidation ratio will be set at 150% (established / amended subject to Rubix Governance).
Rubix Protocol Auctions:
The auction mechanisms of the Rubix Protocol enable the system to liquidate Vaults. At the point of liquidation, the Rubix Protocol takes the liquidated Vault collateral and sells it using an internal market-based auction mechanism. This mechanism is what is called a Collateral Auction.
The TAD received from the Collateral Auction is used to cover the Vault’s outstanding obligations, including payment of the Liquidation Penalty fee (established / amended subject to Rubix Governance / Collateral type).
If the Collateral Auction does not raise enough TAD to cover the Vault’s outstanding obligation, the deficit is converted into Protocol debt. Protocol debt is covered by the TAD in the Rubix Buffer. If there is not enough TAD in the Buffer, the Protocol triggers a Debt Auction. During a Debt Auction, RBX is minted by the system (increasing the amount of RBX in circulation), and then sold to bidders for TAD. The Debt Auctions are triggered manually. If no auction is triggered and the protocol remains insolvent the protocol will take a percentage of every vault closed until the debt is managed.
The TAD Savings Rate:
The TAD Savings Rate (TSR) allows any TAD holder to earn savings automatically and natively by locking their TAD into the TSR contract in the Rubix Protocol. It can be accessed via our dashboard. Users aren’t required to deposit a minimum amount to earn the TSR, and they can withdraw any or all of their TAD from the TSR contract at any time.
The TSR is a global system parameter that determines the amount TAD holders earn on their savings over time. When the market price of TAD deviates from the Target Price due to changing market dynamics, RBX holders can mitigate the price instability by voting to modify the TSR accordingly:
If the market price of TAD is above 1 USD, RBX holders can choose to gradually decrease the TSR, which will reduce demand and should reduce the market price of TAD toward the 1 USD Target Price.
If the market price of TAD is below 1 USD, RBX holders can choose to gradually increase the TSR, which will stimulate demand and should increase the market price of TAD toward the 1 USD Target Price.
Initially, adjustment of the TSR will depend on a weekly process, whereby RBX holders first evaluate and discuss public market data and proprietary data provided by market participants, and then vote on whether an adjustment is necessary or not. The long-term plan includes implementation of the TSR Adjustment Module, an Instant Access Module that directly controls both the TSR and the Base Rate. This module allows for easy adjustment of the TSR (within strict size and frequency boundaries set by RBX holders) by an RBX holder on behalf of the larger group of RBX holders. The motivation behind this plan is to enable nimble responses to rapidly changing market conditions, and to avoid overuse of the standard governance process.
