Defaults & Liquidations
Last updated
Last updated
In collateralized lending pools of money market protocols, defaults normally don't lead to a loss for the pool as the collateral can be liquidated in open markets. RAMM's system does not assume such liquidity for all collateral; if the proposed collateral is indeed illiquid in open markets, a manager would have to decide if there would be enough external auction interest when defaults do occur. Otherwise, the redemption price of longZCB would be significantly lower than the price at which they bought them.
When a liquidation threshold is met, a dutch auction will be triggered to liquidate the collateral. Any value captured by the auction would be directed back to the lending pool, and the redemption price of longZCB would be adjusted in accordance with the added proceeds.
Ultimately, it is the interest of the manager to determine whether the pool will stay solvent, given its accepted collaterals or conditions, and whether its interest rate curve fully prices their risk
Read more about how our Conditional LendingPool innovates upon existing lending pools in our blog .
Based on the maxBorrowableAmount, a dutch auction will be triggered to liquidate the collateral of the borrower if