Liquidation 2.0) Collateral Auction
Last updated
Last updated
If there is not enough ZUSD liquidity in the Reserve Fund to cover the liquidation debt, then the Bank collateral will be auctioned off to bidders in a Collateral Auction. Liquidators in a Collateral Auction may only bid in ZUSD. Collateral Auctions have several parameters that are DAO-determined, such as BidDuration, AuctionDuration, BidStep. 100% of the Liquidated Bank’s collateral will be auctioned to raise the outstanding balance of the ZUSD loan.
In an efficient market, the Collateral Auction will raise approximately 110% of the outstanding ZUSD loan balance, and this difference between ZUSD raised at auction and ZUSD loan outstanding will be retained by the protocol as revenue. The DAO may determine to retain the ZUSD, recycle it into the Reserve Fund, or redeem for collateral and pay down the riskiest Banks. If the Collateral Auction fails to raise enough ZUSD to cover the outstanding debt of the liquidated Bank contract, the protocol will perform a Slash Auction.