Liquidation Reserve

When a user mints cUSD and opens a vault, 20 cUSD is automatically held by the protocol as a liquidation reserve.

The liquidation reserve:

• Covers the cost of gas that will be incurred by the liquidator should the vault get liquidated.

• Is considered part of the vault’s debt position and is included in the calculation of collateral ratios and interest payments.

• Can be refunded fully, but only when the vault is closed through the repayment of debt, or by a redemption. If the vault is liquidated, the liquidation reserve will accrue to the liquidator.