Why Do We Have Liquidations?

The collateral held in the vaults serves as a guarantee of the value of the stablecoins created by users. The system would collapse if the value of the collateral in the vaults were lower than the value of the protocol's stablecoins. This would indicate that the stablecoins on the network are not properly backed by any kind of value. To avoid this scenario, vaults must always have a higher value of collateral than the value of their loans. Vaults use the liquidation penalty to encourage users to maintain good debt-to-collateral ratios.

Why do we do partial liquidations rather than full liquidations?

1. To reduce the amount of collateral that vault owners would lose in liquidation scenarios;

2. To increase capital efficiency for users.

We want to make DeFi as welcoming as possible for everyone, regardless of how well-off or knowledgeable our users are. That's why we've created a safe environment for users to interact with DeFi using this project. We have taken the necessary measures to guarantee the stability of our project. And liquidations are a crucial component of a successful project.