Liquidations

Liquidation exists to bring a vault's collateral ratio above the MCR threshold. To ensure the supply of cUSD is always overcollateralized, vaults whose collateral ratios fall below the MCR are subject to liquidation.

When liquidation occurs, a vault's cUSD debt will be written off and absorbed by the Stability Pool. In exchange, the Stability Pool and liquidator will receive the liquidated collateral.

As liquidation can be triggered just slightly below the MCR threshold, the owner of the vault will inevitably suffer a loss. Therefore, it is imperative for vault owners to maintain a collateral ratio that is higher than the MCR.

For a detailed example of the liquidation mechanism, please refer here.