What are liquidations?

Liquidations are a key mechanism in UWU Protocol that ensures that UWU is backed by sufficient collateral. In the event that a Vault fails to maintain a minimum collateral ratio of 150%, the Vault is liquidated (closed). During a liquidation, liquidators are able to acquire the collateral held in a Vault by repaying the Vault's debt.

How do UWU Protocol liquidations differ from others?

UWU Protocol employs a unique multi-party liquidation mechanism that offers low barriers to entry, instant execution, and higher incentives.

Here are some of its key features:

  • Collateral isn't sold via an auction

  • Multiple users can liquidate a single Vault

  • The entire collateral of a Vault is sold

  • No grace periods or partial liquidations occur

  • No fees are charged for liquidating a Vault

Those participating in the liquidation of a Vault can repay any amount of debt, as long as the Vault's debt balance is greater than 25 UWU. If a Vault's debt balance is 25 UWU, the liquidator must resolve the total debt.

How can I avoid getting liquidated?

To avoid liquidation, ensure that the collateral ratio of your Vault stays above 150%. To minimize the potential loss of collateral, it's crucial to monitor your Vault and adjust its collateral ratio. To increase its collateral ratio, you can deposit collateral and/or repay debt.

Who can liquidate Vaults?

Anyone can liquidate a Vault if its collateral ratio is below 150%.

How do I benefit as a liquidator?

As liquidations happen just below a collateral ratio of 150%, you will most likely experience a net gain when liquidating a Vault.

For example, let's say a Vault has $1,500 worth of STX collateral and 1,000 UWU of debt. If the value of the collateral drops to $1,490, the collateral ratio falls below the 150% minimum, and the Vault is liquidated.

If you repay 500 UWU of debt, you will receive 50% of the Vault's collateral. Assuming the STX price remains constant and that UWU is valued at $1.00, the collateral you will receive would be worth $745. This would result in a profit of $245 in STX at the time of liquidation.

What oracle does UWU Protocol rely on?

UWU Protocol relies on Arkadiko's STX:USD price feed, with plans to move to a more decentralized oracle in the future. For more information on oracle risks, please refer to the Risk Disclosure page.

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