Recovery Mode is a system level security mechanism. When the Total Collateral Ratio (TCR) of the system falls below 150%. During Recovery Mode, PiggyBanks with a collateral ratio below the TCR (i.e. in the worst case up to 150%) can be liquidated.
Moreover, the system blocks borrower transactions that would further decrease the TCR. New $PUSD may only be issued by adjusting existing PiggyBanks in a way that improves their collateral ratio, or by opening a new PiggyBank with a collateral ratio >=150%. In general, if an existing PiggyBank's adjustment reduces its collateral ratio, the transaction is only executed if the resulting TCR is above 150%.
When the system is under the Recovery Mode, the notice will be shown on dashboard overview.
The Total Collateral Ratio or TCR is the ratio of the Dollar value of the entire system collateral at the current $BNB:USD price, to the entire system debt. In other words, it's the sum of the collateral of all PiggyBanks expressed in USD, divided by the debt of all PiggyBanks expressed in $PUSD.
The goal of Recovery Mode is to incentivize borrowers to behave in ways that promptly raise the TCR back above 150%, and to incentivize $PUSD holders to replenish the Stability Pool.
Economically, Recovery Mode is designed to encourage collateral top-ups and debt repayments, and also itself acts as a self-negating deterrent: the possibility of it occurring actually guides the system away from ever reaching it. Recovery Mode is not a desirable state for the system.
While Recovery Mode has no impact on the redemption fee, the borrowing fee is set to 0% to maximally encourage borrowing.
By increasing your collateral ratio to 150% or greater, your PiggyBank will be protected from liquidation. This can be done by adding collateral, repaying debt, or both.
Yes, you can be liquidated below 150% if your PiggyBank's collateral ratio is smaller than the TCR. In order to avoid liquidation in Normal Mode and Recovery Mode, a user should keep their collateral ratio above 150%.
- ICR = Individual Collateral Ratio
- MCR = Minimum Collateral Ratio
- TCR = Total Collateral Ratio
- SP = Stability Pool
In Recovery Mode, liquidation loss is capped at 110% of a PiggyBank's collateral. Any remainder, i.e. the collateral above 110% (and below the TCR), can be reclaimed by the liquidated borrower from the Dashboard Overview.
This means that a borrower will face the same liquidation “penalty” (10%) in Recovery Mode as in Normal Mode if their PiggyBank gets liquidated