🔼Recovery Fees

Recovery Mode Overview

Recovery Mode is activated when the Total Collateral Ratio (TCR) of the system drops below 150%.

During this mode, Troves (borrowers’ positions) with a collateral ratio under 150% are at risk of liquidation. The system also restricts borrower transactions that could further lower the TCR. New BaseFee can only be issued if existing Troves are adjusted to improve their collateral ratio or if a new Trove is opened with a collateral ratio of 150% or higher. In general, any adjustment that would reduce a Trove’s collateral ratio is only permitted if the resulting TCR remains above 150%.

What is the Total Collateral Ratio (TCR)?

The Total Collateral Ratio (TCR) is the ratio of the total dollar value of the system’s collateral, based on the current ETH

price, to the system’s total debt. Essentially, it’s calculated by dividing the sum of all Troves’ collateral value (in USD) by the total system debt (expressed in BaseFee).

Purpose of Recovery Mode

The primary goal of Recovery Mode is to incentivize borrowers to take actions that quickly raise the TCR back above 150% and encourage BaseFee holders to replenish the Stability Pool. Economically, Recovery Mode promotes collateral top-ups and debt repayments. It also serves as a deterrent: the mere possibility of entering Recovery Mode encourages behaviors that prevent the system from reaching this state. It’s important to note that Recovery Mode is not a desirable state for the system.

Protecting Your Trove in Recovery Mode

To safeguard your Trove from liquidation during Recovery Mode, ensure your collateral ratio is 150% or higher. You can achieve this by adding more collateral, repaying debt, or both.

Risk of Liquidation in Recovery Mode

If your collateral ratio falls below 150% during Recovery Mode, your Trove may be liquidated. To avoid liquidation in any system mode, it’s advisable to maintain a collateral ratio above 150%.