Vaultedge docs
  • Introduction
  • 🏭The protocol
    • General
    • Terminology
    • Borrowing
      • Vaults
      • Risk methodology
      • Soft liquidations
      • Stability pool
      • Recovery mode
      • Collateral Whitelisting
      • Whitelisted assets
      • Fees
      • VE tokens management
    • veUSD
      • Price stability
      • Maintaining the peg
    • The flywheel
  • Terms and Conditions
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  2. Borrowing

Risk methodology

PreviousVaultsNextSoft liquidations

Last updated 2 months ago

The Vaultedge protocol regularly updates the collateral asset prices via a decentralized data feed. When a vault's Individual Collateral Ratio (ICR) falls below 150%, the vault enters the liquidation mechanism, under the following steps:

ICR
Stage
Process

150% > ICR > 110%

Soft liquidations

All assets are sent to the soft liquidation mechanism allowing anyone to bid on the collateral at a small discount (based on the ICR)

110% >= ICR

Stability pool

the stability pool will repay the vaults' debt and receive the collateral .

110% > ICR & stability pool without liquidity

Redistribution

the redistribution mechanism will take place .

When a Vault falls below the ICR of 110%, it is considered under-collateralized and is automatically sent to the stability pool.

The liquidation mechanism is automatic, which makes the liquidation process very efficient

Deppeg Mitigation Process:

If veUSD falls below $1, the soft liquidation mechanism should generate enough demand to restore its peg. However, there may be situations where there aren’t enough vaults eligible for soft liquidation.

In such cases, if the demand for veUSD remains insufficient to bring it back to $1, the Minimum Redemption Ratio (MRR) will be increased, allowing vaults to be soft liquidated at a higher Individual Collateral Ratio (ICR). These liquidated vaults will not incur a net loss.

The MRR will continue to be raised until there is sufficient demand to restore veUSD to its $1 peg.

What are liquidations?

To ensure that the entire stablecoin supply remains fully backed by collateral, Vaults that fall under the minimum collateral ratio of 110% will be closed (liquidated).

The debt of the vault is canceled and absorbed by the Stability Pool and its collateral distributed among Stability Providers.

When a Vault gets liquidated, users keep their veUSD but lose their collateral tokens as the debt is paid off through liquidations. Users will no longer be able to retrieve their collateral tokens by repaying the debt.

Liquidations result in a net loss for the Vault owner

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