Chymia
  • What is Chymia
  • ELI5: Activities on Chymia
  • Protocol Concepts
    • Connecting Web3 Wallets to Chymia
    • Depositing Collateral and Minting cUSD
      • Vault
      • Individual Vault Collateral Ratio (ICR)
      • Minimum Collateral Ratio (MCR)
      • Loan Duration
      • Liquidation Reserve
    • Using cUSD
      • Stability Pool
        • Acquiring Liquidated Collateral at a Discount
      • Redemption
    • Repaying cUSD Debt
    • Peg Maintenance
    • Liquidations
      • Liquidator
      • Claiming Liquidated Collateral
      • Liquidation Penalty
      • Underfunded Stability Pool
    • Recovery Mode
      • Impact on Fees
      • Impact on Liquidations
    • Fees
      • Minting Fees
      • Redemption Fees
      • Non-Redemption Fees
      • Interest Fees on Debt
    • Supported Collateral
  • Governance
    • Protocol Governance
    • Earning CHY
    • Emissions
    • Locking
    • Voting
    • Boosting Emissions
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  1. Protocol Concepts
  2. Liquidations

Liquidation Penalty

When a vault gets liquidated, its originator has to pay a Liquidation Penalty.

The Liquidation Penalty has an upper limit of 10%, which means the total value of liquidated collateral has an upper limit of 110% (of debt value).

The Penalty ensures that risks to the protocol are mitigated by:

  • Encouraging originators to maintain their individual vault collateral ratios above the MCR. This minimizes the number of protocol-wide liquidations, and keeps Chymia safely overcollateralized

  • Giving additional compensation to the Stability Pool for providing liquidity to cover liquidations

  • Further incentivizing users to become stability providers, avoiding a scenario where the Stability Pool becomes underfunded

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Last updated 1 year ago