Recovery Mode

What is Recovery Mode?

Recovery Mode kicks in when the Total Collateral Ratio (TCR) of the system falls below 130%.

During Recovery Mode, liquidation conditions are relaxed, and the system blocks borrower transactions that would further decrease the TCR.

New PUSD may only be issued by adjusting existing Troves in a way that improves their ICR, or by opening a new Trove with an ICR of >=130%.

In general, if an existing Troves adjustment reduces its ICR, the transaction is only executed if the resulting TCR is above 130%.

What is the Total Collateral Ratio?

The Total Collateral Ratio or TCR is the ratio of the Dollar value of the entire system collateral at the current BTC/USD price, to the entire system debt.

In other words, it's the sum of the collateral of all Troves expressed in USD, divided by the debt of all Troves expressed in PUSD.

What is the purpose of Recovery Mode?

The goal of Recovery Mode is to incentivize borrowers to behave in ways that promptly raise the TCR back above 130%, and to incentivize PUSD holders to replenish the Stability Pool.

Economically, Recovery Mode is designed to encourage collateral top-ups and debt repayments, and it also acts as a self-negating deterrent; the possibility of it occurring guides the system away from ever reaching it.

Recovery Mode is not a desirable state for the system.

What are the fees during Recovery Mode?

While Recovery Mode has no impact on the redemption fee, the borrowing fee is set to 0% to maximally encourage borrowing (within the limits described above).

How can I make my Trove safe in Recovery Mode?

By increasing your collateral ratio to 130% or greater, your Troves will be protected from liquidation. This can be done by adding collateral, repaying debt, or both.

Can I be liquidated if my collateral ratio is below 130% in Recovery Mode?

Yes, you can be liquidated below 130%. In order to help avoid liquidation in Normal Mode and Recovery Mode, it is recommended that users keep their collateral ratio above 130%.

Trove’s Collateral Ratio	Liquidation Procedure
< 100%	The Trove is liquidated by directly redistributing its entire debt and collateral to other Troves, with no prior Stability Pool offset.
between 100% and 110%	As under normal operation, the Trove is liquidated by first offsetting its debt and collateral against the Stability Pool and redistributing any remainders to other Troves.
between 110% and TCR	The Trove is liquidated by offsetting its debt against the Stability Pool, provided that the entire debt can be liquidated. The liquidated collateral is capped at 110% of the debt, and the remainder above 110% is reclaimable by the borrower.
> TCR	No liquidation possible.

How much of a Troves collateral can be liquidated in Recovery Mode?

In Recovery Mode, liquidation loss is capped at 110% of a Troves collateral. Any remainder, i.e. the collateral above 130% (and below the TCR), can be reclaimed by the liquidated borrower using the standard web interface.

This means that a borrower will face the same liquidation “penalty” (10%) in Recovery Mode as in Normal Mode if their Trove gets liquidated.