1. The purpose of liquidation
Channels is an over-collateralized lending platform, and liquidation can ensure that borrowers will not “run away”, so depositors can deposit money with confidence.
2. Related concepts
Collateral Factor： If you mortgage 100U of ETH, you can lend up to 80U worth of BTC, so the mortgage rate of ETH is 80%. That is, for every 100U of ETH worth of mortgage, 80U worth of coins can be loaned. Mortgage rate can be found on the market page.
liquidation Limit：The liquidation limit is the Borrow Limit, that is, how much money you can borrow from the platform, and it will be liquidated when it reaches the liquidation line. For example, A deposits and mortgages 100U worth of ETH and 80U BTC in Channels. The mortgage rates of ETH and BTC are 80% and 85%, respectively. Then liquidation of A line/borrowing limit=100*80%+80 *85%=148U. So, A can lend up to 148U worth of coins.
Fund utilization rate: Fund utilization rate = loaned funds/ Borrow Limit. For example, can lend up to 148U of tokens. She actually lent 100U of tokens. At this time, her fund utilization rate=100/148=67.6%.
When the loaned funds reach the liquidation line/borrowing limit, that is, when the fund utilization rate reaches 100%, it will be liquidated by the liquidator. After being liquidated, there will be no records on the Channels platform. You need to check on the HECO browser: https://hecoinfo.com/
A deposits and mortgages 100U worth of ETH in Channels. The ETH mortgage rate is 80%. At this time, her loan amount is 80U, and A has lent 70U worth of BTC. The following are 5 common situations that lead to liquidation:
- When the price of BTC rises and the value of BTC lent by A exceeds 80U, assuming the price of ETH remains unchanged, A will be liquidated.
- When the price of ETH drops and the value of 100U of ETH falls below 87.5U, the borrowing limit of A drops to 70U (87.5*80%=70). Assuming the price of BTC remains unchanged, A will be Liquidation.
- Similarly, when the price of BTC rises and the price of ETH falls, it will be liquidated as long as it reaches the liquidation line/borrowing limit (which will change dynamically), or when the fund utilization rate reaches 100%
- When A cancels the mortgage of some of the originally mortgaged tokens, it will cause the liquidation line/borrowing limit to fall, and it happens that the loan amount has exceeded the liquidation line/borrowing limit, resulting in liquidation
- When the borrowing amount is very close to the liquidation line/borrowing limit, the increasing borrowing interest will accumulate into the borrowing amount, which will eventually cause the borrowing amount to exceed the liquidation line/borrowing limit and be liquidated
（2） Liquidation process
When the liquidator (usually a robot or scientist of blockchain) detects that the borrower has triggered the liquidation, it first initiates the liquidation by calling the contract to help the borrower pay off 0%~50% of the total loan amount (the liquidator randomly chooses the ratio), and deduct The user’s deposits of the same value will be cleared, and 8% of the cleared amount will be drawn as a clearing fee (to be borne by the liquidated person).
After the liquidation is completed, the borrower’s deposits and loans will be reduced, and the fund utilization rate will be reduced to less than 100%.
For example, A deposits 100U worth of ETH and lend out BTC. When she lent more than 80U of BTC to trigger liquidation, if the liquidation ratio selected by the liquidator is 50%, then 40U worth of BTC will be liquidated and the liquidator will be liquidated at the same time 40U worth of ETH will be deducted from the A deposit to repay the BTC, and 3.2U (40*8%) of ETH will be charged as a clearing fee. After the liquidation is over, she’s deposit becomes 56.8U of ETH, and the loan becomes 40U of BTC. At this time, her liquidation line is 45.44U (56.8*80%), and her fund utilization rate is 88% (40/ 45.44).
- The liquidation line is a specific amount (such as 80U), not a percentage (such as 80%), and it will change with the amount and price of mortgage tokens.
- During liquidation, all loans will not be liquidated, but 0%~50% will be randomly selected for liquidation
- The 8% of the liquidation fee is not collected by the platform, but taken away by the liquidator, and any user can become the liquidator (so don’t ask the assistant if it can refund the liquidation fee. The liquidation fee is really not The assistant or the platform earns away)
- The fund usage rate will be liquidated when it reaches 100%, not when it has to exceed 100%.
5. How to reduce the risk of being liquidated
- When deposits and loans are both non-stable currencies, it is recommended that the fund utilization rate be controlled within 80%. When at least one of the deposits and borrowings is a stable currency, it is recommended that the fund utilization rate be controlled within 90%.
- Revolving loans (domestic dolls) will greatly increase the utilization rate of funds and thus increase the risk of being liquidated. Pay attention to controlling the number of dolls
- When canceling mortgage/withdrawing funds, pay attention to the reminder of changes in the capital utilization
- Pay attention to the remainder of changes in capital utilization rate when adding new/partial borrowings
- Pay attention to the loan interest will accumulate to the loan amount
6. How to participate in the liquidation
- Any user can participate in the liquidation, and the code is open source and available for inspection.
- Users can initiate liquidation by calling the liquidate Borrow interface of the contract on the chain. The contract will automatically check whether it meets the liquidation conditions and complete the liquidation. You can interact with the contract interface through Remix. The cToken addresses of several mainstream currencies:
- cHT： 0x397c6D1723360CC1c317CdC9B2E926Ae29626Ff3
- cETH： 0x01371C08E2AE6F78D42c9796FA20DDb245Df3885
- cHBTC: 0x8feFb583e077de36F68444a14E68172b01e27dD7
Enter the borrower’s borrowing address, liquidation amount, and the cToken address of the mortgage token can be liquidated, as shown in the following figure:
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