Liquidation

What is Liquidation?

Borrowers (minters) whose collateral rate falls below 150% of the minimum collateral rate must be liquidated to ensure that the mUSD stablecoin is fully backed by collateral assets.

During liquidation, the borrower's (minter's) debt is reduced, and liquidators receive the collateral asset in exchange for paying off the debt.

After liquidation, the borrower's (minter's) reduced debt is paid off, and the value of the liquidated collateral equals 110% of the reduced debt.

It is highly recommended to always maintain a healthy collateral rate above 150%, preferably above 200%.

Liquidators

Liquidators are the first line of defence in preserving system viability. By becoming a liquidator, users can use their mUSD to settle any borrowers' (minters') debts at any time, maintaining the stability of mUSD and the total supply of mUSD. Liquidators are rewarded when liquidation proceeds.

When a borrower (minter) is being liquidated, up to 50% of the borrower's collateral is burned from the liquidator's balance to settle the debt. In return, the liquidator receives the collateral asset worth 109% of the value of the repaid mUSD, and 1% of the collateral asset goes to the Keeper.

Keepers

Any third party can operate a Keeper Program to monitor the state of each liquidator and borrower (minter) on the Meta Protocol.

When a borrower needs to be liquidated, the Keeper can choose to do so immediately using mUSD supplied by the appropriate liquidator in exchange for 1% of the liquidated assets.

For example,

  • User A deposits 10,000 GLP ($10,000) and mints 7,000 mUSD against her collateral.

  • User A's Collateral Rate = 100% * 10000 / 7000 = 142.85%

  • User A is at risk of getting liquidated, and the maximum amount that can be liquidated is 5,000 GLP.

  • User B is a Liquidator holding 3,000 mUSD.

  • User C is a Keeper and decides to conduct liquidation on User A.

  • User B, the liquidator, repays 3,000 mUSD on User A's behalf and receives GLP = 3000 / 1 * 109% = 3270 GLP.

  • User C, the Keeper, receives GLP = 3000 / 1 * 1% = 30 GLP.

  • User A's updated debt is 7,000 - 3,000 = 4,000 mUSD, her collateral is 10,000 - 3270 - 30 = 6,700 GLP, and her current collateral rate is 6,700 x 1 / 4000 = 167.5%.

How Do I Benefit as a Liquidator?

If you are familiar with the entire process, you can perform a liquidation on borrowers (minters) using the official liquidation tool, earning a 10% liquidation reward.

You can also enable the liquidator feature, grant a third-party Keeper access to your funds, and allow them to carry out the liquidation process in exchange for a portion of the 10% liquidation reward (9% to the liquidator and 1% to the Keeper).

How to Become a Liquidator?

You can become a liquidator by simply activating the Liquidator Feature, which can be deactivated at any time to stop the automatic liquidation process.

By enabling the liquidator feature, you can earn an additional 9% arbitrage profit whenever your account's mUSD balance is automatically converted to more GLP through liquidation.

What is Super Liquidation?

When the Meta Protocol Overall Collateral Rate falls below 150%, any user with a collateral rate below 125% may be fully liquidated. In this scenario, the liquidator only needs to pay x mUSD to obtain x * (current collateral rate - 1%) from the liquidated borrower (minter), while the Keeper's reward remains at 1%.

Note: If the Collateral Rate of the liquidated borrower (borrower) is below (100% + Keeper's Reward Ratio), the liquidation provider will receive x * current collateral rate (not less than 100%) of GLP, while the Keeper gets no reward in this case.

For example,

When Super Liquidation Mode is activated:

  • User A deposits 10,000 GLP ($10,000), borrows 8,500 mUSD, and her collateral rate is 100% * 10,000 / 8,500 = 117.6%, which can be fully liquidated.

  • User B provides 8,500 mUSD in exchange for User A's 10,000 GLP collateral. Once the full liquidation is complete, User A's updated debt and collateral are both 0.

By understanding and actively participating in the Meta Protocol as a liquidator, redemption provider, or Keeper, you can benefit from the various mechanisms designed to ensure the stability of the mUSD stablecoin and protect the overall system. Always remember to maintain a healthy collateral rate to minimize the risk of liquidation and maximize the potential benefits of participating in the protocol.

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