Liquidation Principal

If the amount of collateral in the vault drops below the minimum collateral ratio, the algorithm will indicate a 50% cover and will reward you with an additional 10% of coverage.

EXAMPLE: User deposits 0.04 BTC ≈ $900 to borrow 300 USDV at a minimum collateral level of 150%. If the collateral level drops below 150%, the vault becomes undercollateralized. After that, a smart contract launches a liquidation process. In this case, USDV protocol will offer to redeem 50% of the loan with a 10% bonus fee. Any user can repay 150 USDV loan (50% of 300 USDV loan) and get back 150 USD and 15 USD collateral (10%) as bonus fee in BTC. After all these operations the vault becomes overcollateralized again.

Let's take a closer look at each stage:

Stage #1

• User deposits 0.040 BTC ($900) and borrows 300 USDV;

• In such a case, the collateralization ratio is 300%.

• The liquidation happens when the price of BTC/USD goes down and the collateral ratio drops below 150%;

• In this example, the liquidation value is $450.

Stage #2

• The BTC/USD exchange rate declined. As a result, the collateral value drops to $400/0.040 BTC;

• The collateralization ratio dropped to 133.3%, which is lower than the minimum collateralization ratio of 150%;

• The vault has to be liquidated.

Stage #3

• At this point, the liquidation process has started;

• 50% of the debt (150 USDV) is being liquidated;

• Collateral decreased by 0,01665 BTC (debt + reward for liquidator + system fee)

Stage #4

• The liquidation process is now complete;

• 50% of the debt was liquidated (150 USDV remained);

• The remaining collateral is 0.02335 BTC ($233);

• Collateral ratio increased to 155.6 percent.