Recovery Mode

Introduction to Recovery Mode

Recovery Mode is a unique feature of the HLiquity protocol designed to protect the system during periods of extreme market volatility. It is activated when the system's Total Collateral Ratio (TCR) falls below 150%.

How Recovery Mode Works

In Recovery Mode, the HLiquity protocol changes the incentive structure for borrowers and stability depositors. Only loans with a collateral ratio of 110% or higher at the time of liquidation are offset against the Stability Pool during Recovery Mode. In comparison, loans below 110% are directly redistributed to the other borrowers. This allows for higher collateral gains and makes stability deposits practically risk-free, assuming that the price of HCHF never exceeds CHF 1.10.

Liquidation in Recovery Mode

During Recovery Mode, Troves (borrowers) with a collateral ratio below 150% can be liquidated. To avoid liquidation, a user should keep their collateral ratio above 150%. Liquidation behavior varies based on the Individual Collateral Ratio (ICR), Minimum Collateral Ratio (MCR), and the amount of HCHF in the Stability Pool compared to the Trove's debt.

Making Your Trove Safe in Recovery Mode

You can increase your collateral ratio to more than 150% to protect your Trove from liquidation in Recovery Mode. This can be done by adding collateral, repaying debt, or both.

Conclusion

Recovery Mode is a critical safety mechanism in the HLiquity protocol, designed to protect the system and its users during periods of extreme market volatility. By understanding how Recovery Mode works and how to protect your Trove during these periods, you can navigate the HLiquity protocol with confidence, even in turbulent market conditions.