🔼Recovery Mode

What is Recovery Mode?

Recovery Mode kicks in when the Total Collateral Ratio of the system falls below 150%.

During Recovery Mode, Troves with a collateral ratio below 150% can be liquidated.

Moreover, the system blocks borrower transactions that would further decrease the Total Collateral Ratio. New BaseFee may only be issued by adjusting existing Troves in a way that improves their collateral ratio, or by opening a new Trove with a collateral ratio>=150%. In general, if an existing Trove's adjustment reduces its collateral ratio, the transaction is only executed if the resulting TCR is above 150%.

What is the Total Collateral Ratio?

The Total Collateral Ratio or TCR is the ratio of the Dollar value of the entire system collateral at the current ETH:USD price, to the entire system debt. In other words, it's the sum of the collateral of all Troves expressed in USD, divided by the debt of all Troves expressed in BaseFee.

What is the purpose of Recovery Mode?

The goal of Recovery Mode is to incentivize borrowers to behave in ways that promptly raise the Total Collateral Ratio back above 150%, and to incentivize BaseFee holders to replenish the Stability Pool.

Economically, Recovery Mode is designed to encourage collateral top-ups and debt repayments, and also itself acts as a self-negating deterrent: the possibility of it occurring actually guides the system away from ever reaching it. Recovery Mode is not a desirable state for the system.

How can I make my Trove safe in Recovery Mode?

By increasing your collateral ratio to 150% or greater, your Trove will be protected from liquidation. This can be done by adding collateral, repaying debt, or both.

Can I be liquidated if my collateral ratio is below 150% in Recovery Mode?

Yes, you can be liquidated below 150% in Recovery Mode if your Trove’s collateral ratio is below that level. In order to avoid liquidation regardless of system mode, a user should keep their collateral ratio above 150%