🚨Recovery Mode

Understanding the protocol's defensive mechanism to maintain system solvency

Overview

Recovery Mode is a critical safety mechanism in the USDFC Stablecoin Protocol that activates when the Total Collateral Ratio (TCR) falls below 150%. It implements stricter rules for borrowing and liquidation to protect the protocol from systemic under-collateralization and restore stability to the system.

When Recovery Mode is active, Troves with collateral ratios below the current TCR become eligible for liquidation, even if they are above the normal 110% minimum threshold. This creates significant risk for borrowers with lower collateral ratios.

How It Works

Recovery Mode is triggered automatically when the protocol's Total Collateral Ratio (TCR) falls below 150%. During this state, the protocol implements several changes to encourage deleveraging and recapitalization:

Key Changes During Recovery Mode

1. Elevated Liquidation Threshold

   • Normal Mode: Troves below 110% collateral ratio are eligible for liquidation

   • Recovery Mode: Troves below the current TCR (which is < 150%) are eligible for liquidation

   • This means a Trove with 140% collateral ratio could be liquidated if the TCR is 145%

2. Zero Minting Fee

   • The borrowing fee is reduced to 0% to encourage users to add collateral

   • This makes it more economical to improve collateral ratios by minting additional USDFC

3. Restricted Borrowing

   • New borrowing is only allowed if it improves the TCR

   • Users can only mint USDFC if they create a new Trove with ≥150% collateral ratio

   • Existing Trove adjustments are only permitted if they increase the collateral ratio

Key Parameters

Parameter	Normal Mode	Recovery Mode
Liquidation Threshold	110%	Current TCR (< 150%)
Minting Fee	Base Rate + 0.5%	0%
Minimum New Trove CR	110%	150%
System Exit Threshold	N/A	TCR ≥ 150%

Liquidation Behavior in Recovery Mode

Recovery Mode introduces a more complex liquidation process to maximize system stability:

Condition	Liquidation Behavior
ICR ≤ 100%	Redistribute all debt and collateral (minus gas compensation) to active Troves.
100% < ICR < 110% & 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 < 110% & 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.
110% ≤ 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.
110% ≤ ICR < TCR & SP USDFC < Trove debt	Do nothing.
ICR ≥ TCR	Do nothing.

Where:

• ICR = Individual Collateral Ratio

• MCR = Minimum Collateral Ratio (110%)

• TCR = Total Collateral Ratio

• SP = Stability Pool

Example Scenario

1. Triggering Recovery Mode

   • The TCR falls to 145%, automatically activating Recovery Mode

   • All Troves with collateral ratios below 145% become eligible for liquidation

2. System Response

   • Minting fees drop to 0% to encourage collateral additions

   • Borrowers rush to improve their collateral ratios to avoid liquidation

   • Liquidators target Troves with collateral ratios below 145%

3. Exiting Recovery Mode

   • As users add collateral and repay debt, the TCR gradually improves

   • Once the TCR exceeds 150%, the system returns to Normal Mode

   • Regular liquidation thresholds (110%) and minting fees are restored

Risk Management for Borrowers

During Recovery Mode, borrowers should take immediate action to protect their positions:

1. Add Collateral: The most direct way to increase your collateral ratio

2. Repay Debt: Reducing your debt also improves your collateral ratio

3. Monitor TCR: Keep track of the system's TCR to understand your liquidation risk

4. Maintain Buffer: Aim for a collateral ratio well above 150% to avoid liquidation risk

Best Practice: Maintain a collateral ratio of at least 200% during normal operations to provide a substantial buffer against Recovery Mode liquidations.

Common Questions

How long does Recovery Mode typically last? The duration varies based on market conditions and user behavior. It ends automatically when the TCR returns above 150%.

Will I be notified if Recovery Mode is activated? The protocol doesn't send direct notifications. You should monitor the protocol's status page or use third-party monitoring tools.

Can I still close my Trove during Recovery Mode? Yes, you can still close your Trove by repaying all debt, regardless of Recovery Mode status.

Learn more in the FAQs section

Related Topics

• The Trove System
• Liquidation
• System Overview