Recovery Mode

What is Recovery Mode?

Recovery Mode activates when the Total Collateral Ratio (TCR) of a collateral type drops below the Recovery Mode Threshold (RMT).

During Recovery Mode, Bottles with a collateral ratio below RMT can be liquidated.

Moreover, the system blocks borrower transactions that would further decrease the TCR. New BUCK may only be issued by adjusting existing Bottles in a way that improves their collateral ratio, or by opening a new Bottle with a collateral ratio>=RMT. In general, if an existing Bottle's adjustment reduces its collateral ratio, the transaction is only executed if the resulting TCR is above RMT.

What is the Total Collateral Ratio?

The Total Collateral Ratio or TCR is the ratio of the Dollar value of the entire system collateral at the current USD price, to the entire system debt. In other words, it's the sum of the collateral of all Bottles expressed in USD, divided by the debt of all Bottles expressed in BUCK.

What is the purpose of Recovery Mode?

The goal of Recovery Mode is to incentivize borrowers to behave in ways that promptly raise the TCR back above RMT, and to incentivize BUCK holders to replenish the Tank.

Economically, Recovery Mode is designed to encourage collateral top-ups and debt repayments, and it also acts as a self-negating deterrent: the possibility of it occurring actually guides the system away from ever reaching it. Recovery Mode is not a desirable state for the system.

What are the fees during Recovery Mode?

While Recovery Mode has no impact on the redemption fee, the borrowing fee is set to 0% to maximally encourage borrowing.

How can I make my Bottle safe in Recovery Mode?

By increasing your collateral ratio to RMT or greater, your Bottle will be protected from liquidation. This can be done by adding collateral, repaying debt, or both.

Can I be liquidated if my collateral ratio is below RMT in Recovery Mode?

Yes, you can be liquidated below RMT if your Bottle's collateral ratio is smaller than RMT. In order to avoid liquidation in Normal Mode and Recovery Mode, a user should keep their collateral ratio above RMT.

How do liquidations work in Recovery Mode?

• ICR = Individual Collateral Ratio

• MCR = Minimum Collateral Ratio

• TCR = Total Collateral Ratio

Condition	Liquidation Behavior
ICR <=100%	Redistribute all debt and collateral to Bottles.
100% < ICR < MCR & Tank BUCK > Bottle debt	BUCK in the Tank equal to the Bottle's debt is offset with the Bottle's debt. The Bottle's collateral is shared between depositors.
100% < ICR < MCR & Tank BUCK < Bottle debt	The total Tank BUCK is offset with an equal amount of debt from the Bottle. A fraction of the Bottle's collateral (equal to the ratio of its offset debt to its entire debt) is shared between depositors. The remaining debt and collateral are redistributed to Bottles.
MCR <= ICR < TCR & Tank BUCK >= Bottle debt	The Tank BUCK is offset with an equal amount of debt from the Bottle. A fraction of collateral with a dollar value equal to 1.1 * debt is shared between depositors. Nothing is redistributed to other Bottles.
MCR <= ICR < TCR & Tank BUCK < Bottle debt	Do nothing.
ICR >= TCR	Do nothing.

How much of a Bottles collateral can be liquidated in Recovery Mode?

In Recovery Mode, liquidation loss is capped at 110% of a Bottle's collateral. Any remainder, i.e. the collateral above 110% (and below the TCR), can be reclaimed by the liquidated borrower using the standard web interface.

This means that a borrower will face the same liquidation “penalty” (10%) in Recovery Mode as in Normal Mode if their Bottle gets liquidated.