Recovery Mode

Recovery Mode is a special mode that is triggered when the Total Collateral Ratio (TCR) of the protocol drops below 150%.

During Recovery Mode, liquidation conditions are relaxed, and the system blocks borrower transactions that would further decrease the TCR. New ARTH may only be issued by adjusting existing loans in a way that improves their ICR, or by opening a new loan with an ICR of >=150%.

In general, if an existing loan's adjustment reduces its ICR, the transaction is only executed if the resulting TCR is above 150%

If the protocol goes into recovery mode, then loans with a collateral ratio below 150% can be liquidated until the protocol comes back out of recovery mode. In general, borrowers are encouraged to always maintain a collateral ratio above 150%. To understand more about this behavior, read recovery mode liquidations.

Recovery Mode is initiated to make sure new borrowers take out loans that do not further reduce the TCR and help raise the TCR back above 150%. Furthermore, it's also an incentive for ARTH holders to participate in the Stability Pool and provide more ARTH to the pool. As a system design, Recovery Mode is best avoided. Thus, the possibility of going into recovery mode should be a crucial point for ecosystem participants to make amends to their position, to ensure that they do not go into Recovery Mode.

FAQs

What is the collateralization ratio in Recovery Mode?

The CR in Recovery Mode is 150%. While the CR in normal mode is 110%.

Do fees change during Recovery Mode?

Yes. While the redemption fee remains the same, the borrowing fee is set to 0% to encourage borrowing in the system.

Measures to remain safe in Recovery Mode?

As a borrower, simply increasing your collateral ratio to >150% will protect you from any liquidations. Thus, you will have to either

• Add more collateral

• Repay some debt

Can I be liquidated if my collateral ratio is below 150% in Recovery Mode?

Yes. During recovery mode, your position can be liquidated if it falls below 150% CR. Otherwise, during normal circumstances, the CR will remain at 110%. It is advised to both monitor and adjusts as needed to avoid liquidation risk.

How much of a loan's collateral can be liquidated in Recovery Mode?

In Recovery Mode, liquidation loss is capped at 110% of a loan'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 loan gets liquidated.