Liquidation Model
Helio Protocol will be using the Collateral Auction mechanism as the liquidation model. Example of liquidation process below.
Variable/Step | Value/Formula |
Price of 1 unit of collateral | $2 |
Liquidation ratio | 66% |
Collateral price based on liquidation ratio | $1.32 |
Assume User deposit 10 units collateral | 10*2 = $20 |
Borrow limit | user_deposit * liquidation_ratio = 20 * 0.66 = $13.2 |
Assume User borrows $13.2 of HAY | 13.2 $HAY |
Assume Price of 1 unit of collateral decreases to | $1.8 |
Collateral unit price with safety margin | current_collateral_unit_price * liquidation_ratio = 1.8 * 0.66 = $1.188 |
Current worth of collateral with safety margin | price_of_colatteral * amount_of_collateral = 1.188 * 10 = $11.88 |
Positive diff puts user under liquidation line | borrowed_amount - current_total_colateral_borrow_limit = 13.2 - 11.88 = $1.32 |
Amount of collateral that goes to Dutch auction | 10 |
Liquidation penalty (fixed by Helio governance) | 13% of Debt |
Debt to cover in the auction | borrowed amount * liquidation penalty = 13.2 * 1.13 = $14.916 |
Buf (percentage similar to liquidation penalty, fixed by Helio governance) | 2% |
Starting auction price (top) | current_collaterral_unit_price * buf = 1.8 * 1.02 = $1.836 |
Somebody triggers auction and gets tip + chip as a reward for doing it |
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Auction starts and the price gradually decreases. Liquidator can participate to buy customized amount of liquidated collateral |
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Tau (time until price is 0; fixed by Helio governance)) | e.g. 3600 |
Dur (fixed by Helio governance) | time in seconds elapsed since the auction start, e.g. 600 |
Linear decrease of price (subject to be disrupted at the below event) | top * ((tau - dur) / tau) = 1.836 * ((3600 - 600) / 3600) = $1.53 |
Pause auction because of one of two conditions: — tail (specific amount of time elapsed; fixed by Helio governance) OR — cusp (% of price drop; 40% start auction price; fixed by Helio governance) | Either requirement is met, the auction will be restarted |
Wait till someone restarts auction |
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Tip (flat fee; fixed by Helio governance)) | $300 |
Chip (dynamic fee; fixed by Helio governance)) | 0.1% of amount of debt in the auction |
Restarter gets tip + chip as a reward |
To limit the risk of liquidation, users are recommended to:
Borrow with caution and borrow under suggested liquidation ratio (~66%).
Periodically monitor borrowed position & account balance, to either repay back the loan or deposit more collateral.
Subscribe to Helio Protocol’s Liquidation Alert System (LAS).
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