# Recovery Mode

## **What is Recovery Mode?**

Recovery Mode kicks in when Total Collateral Ratio (TCR)  of the entire system falls below **150%**.

During Recovery Mode, Asset Portfolio with collateral ratio below 150% has risk to be liquidated.

In addition, to prevent TCR from continuing to decrease in the Recovery Mode, the system will block some transactions of borrowers. New PUST can only be borrowed by adjusting existing Asset Portfolio to increase their collateral ratio, or by opening a new portfolio with a  collateral ratio>= 150%. In general, if an adjustment to an existing portfolio reduces its collateral ratio, the trade will only be executed if the final TCR is above 150%.

## **What’s the function of Recovery Mode?**

The goal of the recovery model is to encourage borrowers to act in a way that rapidly increases TCR above 150%, and incentivizes PUST holders to replenish the Stability Pool.

Economically speaking, the Recovery Mode, which is designed to encourage adding collateral  and repaying debt, also acts as a self-negating deterrent: the possibility of it occurring actually guides the system away from ever reaching it. Recovery mode is not an ideal state for a system.

## **Parameters Relative**

**Total Collateral Ratio(TCR)：** The total collateral ratio (TCR) of the entire system. It’s fluctuant according to realtime collateral percentage in whole Palm protocol. You will find it in homepage of Palm Finance.

**Safety Ratio (SR):** Each type of Collateral has its own safety ratio on Palm, please refer to the relevant table.

**Risk-Adjusted Value(RAV) =** Safety Ratio \* Token amount \* Token Price in USD

**Individual Collateral Ratio(ICR)=**&#x43;ollateral RAV/Debt.  It shows the user's risk-adjusted collateral ratio of Asset Portfolio.

> eg.  Tom deposits 1000 TokenX at price of $2.75 with safety ratio of 0.8, and borrows 2000 PUST in debt.
>
> RAV= 1000\*2.75\*0.8= 2200
>
> ICR = 2200 RAV/2000PUST= 110%

#### **In Recovery Mode, these parameters will be applied:**

**Adjusted\_Safety\_Ratio (ASR):** Stablecoin collateral has a new safety ratio of 1.6 for the AICR calculation, while other assets will still use their safety ratios. That means the portfolio with more stablecoins has higher ratio and are more unlikely to get liquidated.

**Adjusted Risk-Adjusted Value (ARAV)=** Adjusted\_Safety\_Ratio \* Price \* Collateral\_Amount

**Adjusted Inividual Collateral Ratio(AICR):** is the adjusted ICR by giving weight to stablecoins.

> eg.  Alice deposits $11000 in stablecoion qiUSDC, and borrows 10000 PUST.
>
> -In normal mode, qiUSDC applies the safety Ratio 1.05, that is
>
> RAV=11000\*1.05=11550
>
> ICR=Collateral RAV/Debt= 11550 RAV /10000 PUST=115.5%
>
> -In Recovery mode, qiUSDC applies adjusted safety ratio 1.6, as consequence:
>
> ARAV=11000\*1.6=17600
>
> AICR=Collateral ARAV/Debt =17600 ARAV/10000 PUST=176%
>
> Alice won’t be liquidated as her AICR is above 150% and ICR is above 110%

## How do liquidations work in Recovery Mode? <a href="#how-do-liquidations-work-in-recovery-mode" id="how-do-liquidations-work-in-recovery-mode"></a>

* ICR = Individual Collateral Ratio
* MCR = Minimum Collateral Ratio (On Palm it's set fixed **110%** as the threshold )
* TCR = Total Collateral Ratio
* SP = Stability Pool

<table><thead><tr><th width="221.20831823052077">Condition</th><th>Liquidation Behavior</th></tr></thead><tbody><tr><td>ICR &#x3C;=100%</td><td>Redistribute all debt and collateral (minus ETH gas compensation) to active Asset portfolios.</td></tr><tr><td>100% &#x3C; ICR &#x3C; MCR &#x26; SP PUST > Asset portfolio debt</td><td><p>PUST in the Stability Pool is offset with the Asset Portfolio's debt. </p><p></p><p>The Asset Portfolio's collateral (minus ETH gas compensation) is shared between stability pool depositors.</p></td></tr><tr><td>100% &#x3C; ICR &#x3C; MCR &#x26; SP PUST &#x3C; Asset portfolio debt</td><td><p>The total Stability Pool PUST is offset with an equal amount of debt from the Asset Portfolio. A fraction of the Asset Portfolio's collateral (equal to the ratio of its offset debt to its entire debt) is shared between depositors. </p><p></p><p>The remaining debt and collateral (minus ETH gas compensation) is redistributed to active Asset Portfolios.</p></td></tr><tr><td><p>MCR &#x3C;= ICR </p><p>&#x26; AICR &#x3C; TCR </p><p>&#x26; SP PUST >= Asset portfolio debt</p></td><td><p>In this case, the Stability Pool PUST is offset with an equal amount of debt from the Asset Portfolio. A fraction of collateral with dollar value equal to <code>1.1 * debt</code> is shared between depositors. </p><p></p><p>Nothing is redistributed to other active Asset Portfolios. Since its ICR was <code>> 1.1</code>, the Asset Portfolio has a collateral remainder, which is sent to the <code>CollSurplusPool</code> and is claimable by the borrower. The Asset portfolio is closed.</p></td></tr><tr><td>MCR &#x3C;= ICR &#x26; AICR &#x3C; 150% &#x26; SP PUST &#x3C; Asset portfolio debt</td><td>Do nothing. Because there is insufficient PUST in the stability pool to fully offset, this Asset portfolio is not liquidated.</td></tr><tr><td>AICR >= 150%</td><td>Do nothing.</td></tr></tbody></table>

## **FAQ** <a href="#how-much-of-a-troves-collateral-can-be-liquidated-in-recovery-mode" id="how-much-of-a-troves-collateral-can-be-liquidated-in-recovery-mode"></a>

### **1.How can I make my portfolio safe in Recovery Mode？**

By monitoring and increasing your Adjusted Collateral Ratio to 150% or greater, your Asset portfolio will be protected from liquidation. This can be done by adding collateral, repaying debt, or both.

### **2.Will I get liquidated if AICR is below 150% in Recovery Mode?**

You can be liquidated in recovery mode if your **AICR** is below the **TCR**. In order to avoid liquidation in Normal Mode and Recovery Mode, users should keep their Asset portfolio collateral ratio (the normal one) above 110% as well as keeping their adjusted collateral ratio above 150%.

> eg. Let’s assume that system TCR is 145% and Recovery Mode is activated. John’s AICR is 130% and he gets liquidated, while Alice’s AICR is 148% and above the TCR, her portfolio won’t get liquidated. Alice is safe, but she’d better increase her ratio above 150%.

### **3.How much of my collaterals will be liquidated in Recovery Mode?**

Liquidated collateral lost is capped at 110% of a Asset portfolio's debt. Specifically, the dollar value of the collateral sent to the stability pool is a maximum of 110% of the PUST debt that is offset. Any remainder, i.e. the collateral above 110%, 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 Asset portfolio gets liquidated.[ ](https://docs.teddy.cash/teddy-staking)

### **4.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 adjusting  (within the limits described above).​
