💞Recovery Mode

Recovery Mode is activated when the Total Collateral Ratio (TCR) of the protocol falls below 150%. It is designed to protect the protocol from a systemic risk of under-collateralization by prioritizing debt repayment and collateral distribution.

Key Changes During Recovery Mode

1. Minimum Collateral Ratio Enforcement Troves with a collateral ratio below 150% are immediately eligible for liquidation, receiving a 10% penalty upon liquidation.

2. Zero Minting Fee The borrowing fee is set to 0%, encouraging users to add collateral and stabilize the protocol.

3. Minting Restrictions Borrowing that would lower the TCR is blocked. New USDFC can only be issued if it improves a Trove’s collateral ratio or establishes a new Trove at 150% or higher. Adjustments reducing collateral ratio are permitted only if the resulting TCR exceeds 150%.

4. Stability Pool Operations The Stability Pool continues absorbing liquidations, distributing Filecoin (FIL) to depositors at a discount.

Purpose

The goal of Recovery Mode is to restore the TCR to 150% or higher and prevent a cascade of liquidations that could threaten the protocol’s stability.

Risk to Trove Holders

• Trove holders should maintain a high collateral ratio during Recovery Mode to avoid liquidation.

• Low-collateral Troves (below 150%) are more vulnerable and can be liquidated immediately.

Example Scenario

1. The TCR falls to 145%, triggering Recovery Mode.

2. Troves below 150% are prioritized for liquidation.

3. Users are incentivized to add collateral to protect their positions and restore system stability.

How do liquidations work in Recovery Mode?

• ICR = Individual Collateral Ratio

• MCR = Minimum Collateral Ratio

• TCR = Total Collateral Ratio

• SP = Stability Pool

Condition	Liquidation Behavior
ICR <=100%	Redistribute all debt and collateral (minus gas compensation) to active Troves.
100% < ICR < MCR & SP USDFC > Trove debt	USDFC in the Stability Pool equal to the Trove's debt is offset with the Trove's debt. The Trove's FIL collateral (minus gas compensation) is shared between depositors.
100% < ICR < MCR & SP USDFC < Trove debt	The total Stability Pool USDFC is offset with an equal amount of debt from the Trove. A fraction of the Trove's collateral (equal to the ratio of its offset debt to its entire debt) is shared between depositors. The remaining debt and collateral (minus gas compensation) is redistributed to active Troves.
MCR <= ICR < TCR & SP USDFC >= Trove debt	The Stability Pool USDFC is offset with an equal amount of debt from the Trove. A fraction of FIL collateral with dollar value equal to 1.1 * debt is shared between depositors. Nothing is redistributed to other active Troves. Since its ICR was > 1.1, the Trove has a collateral remainder, which is sent to the CollSurplusPool and is claimable by the borrower. The Trove is closed.
MCR <= ICR < TCR & SP USDFC < Trove debt	Do nothing.
ICR >= TCR	Do nothing.