Liquidation
Purpose and Conditions
The liquidation mechanism ensures that the value of ESD remains fully backed by EDU collateral, maintaining a collateralization ratio of at least 100%. Liquidation is triggered when the collateral value, including the safety margin, falls below the borrowed ESD value.
In such cases, the collateral is liquidated through a Dutch auction process, where the price starts high and decreases over time until a buyer is found.
Participants in the Liquidation Process
The liquidation process is fully decentralized, allowing anyone in the ecosystem to participate. This includes:
General Participants: Any user with ESD can participate in auctions and purchase EDU at a discounted price.
Team Support: During the early stages, the team will actively participate in auctions to ensure system stability in case of low participation.
Detailed Liquidation Process
Auction Start:
When liquidation is triggered, the collateral is put up for auction. The price starts high and gradually decreases over time.
Opportunity for Buyers:
Auction participants can purchase EDU at a discount using ESD. The price reduction over time creates an opportunity for participants to find an optimal buying point.
Debt Repayment:
The ESD collected during the auction is used to repay the borrower's outstanding debt.
Collateral Return:
After the debt is fully repaid, any remaining collateral is returned to the borrower's wallet, ensuring fair treatment.
Profit for Participants:
Auction participants benefit by acquiring EDU at a discount, earning a profit based on the difference between the discounted price and the market value.
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