π‘οΈRecovery Mode
Recovery Mode is a critical safety mechanism within the Satoshi Protocol, meticulously designed to safeguard the system's overall health and stability by ensuring that the Total Collateral Ratio (TCR) remains at a robust and health level. This mode is activated when the TCR falls below a specific threshold, initiating a set of rules aimed at restoring the system's balance and protecting its users. Here's an in-depth look at Recovery Mode, its triggers, implications, and how users can navigate it.
What Triggers Recovery Mode?
Recovery Mode is triggered when the system's Total Collateral Ratio (TCR) drops below 150%. The TCR is a pivotal metric that measures the overall health of the system by comparing the total dollar value of all collateral within the system to the total system debt. A TCR below 150% signals a potential risk to the system's stability, activating Recovery Mode to mitigate these risks and restore equilibrium.
Implications of Recovery Mode
During Recovery Mode, specific actions are taken to prevent further decrease in the TCR and to encourage actions that would raise the TCR back above the 150% threshold:
Liquidations: Position with a collateral ratio below 150% become eligible for liquidation. This process helps remove riskier Positions from the system, contributing to the restoration of a healthy TCR.
Minting Restrictions: The system temporarily restricts transactions from users that could further compromise the TCR. While new satUSD can still be issued, it's limited to adjustments that improve an existing Position's collateral ratio or the creation of new Position with a collateral ratio of 150% or higher.
Incentives for Recovery: Despite the restrictive measures on minting during Recovery Mode, the minting fee is set to 0% to encourage minting under the strict conditions that it improves the TCR. This incentive is designed to stimulate the system's recovery, facilitating a return to normal operations and promoting stability.
Total Collateral Ratio (TCR)
The Total Collateral Ratio represents the system's overall leverage, calculated by dividing the dollar value of all collateral by the total debt in satUSD. A healthy TCR indicates a well-collateralized system, whereas a low TCR signals potential liquidity issues and system instability.
Purpose of Recovery Mode
The primary goal of Recovery Mode is to quickly realign the system's TCR above 150%, ensuring the platform remains stable and functional. It serves both as a corrective mechanism and a deterrent, encouraging users to maintain healthy collateral ratios and avoid system-wide risks.
Managing Your Position in Recovery Mode
To safeguard your Position from liquidation in Recovery Mode:
Increase Collateral Ratio: Boost your Position's collateral ratio to 150% or above by adding more collateral or repaying part of the debt.
Understanding Liquidation Risks: If your Position's collateral ratio falls below 150%, it becomes vulnerable to liquidation during the Recovery Mode. It is highly recommended to maintain a collateral ratio above this threshold in both Normal and Recovery Modes to avoid potential liquidation.
Liquidations in Recovery Mode
Recovery Mode is a essential component of the Satoshi Protocol's risk management framework, meticulously designed to uphold system stability and protect users' interests. By comprehending and adhering to the principles and requirements of Recovery Mode, participants can help ensure the long-term health and success of the platform.
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