🔁Recovery Mode

What is Recovery Mode?

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

During Recovery Mode, Asset portfolios with a "Adjusted Collateral Ratio" (AICR) below the TCR of the system are eligible to be liquidated as well as those with ICR < 110%.

Stablecoin Asset portfolios are still safe during recovery mode. Since this uses Adjusted Collateral Ratio, Asset portfolios with purely stablecoins as collateral are not subject to these conditions due to having a higher AICR. See below for more information on adjusted safety ratios.

Moreover, the system blocks borrower transactions that would further decrease the TCR. New PUST may only be issued by adjusting existing Asset portfolios in a way that improves their collateral ratio, or by opening a new Asset portfolio with a collateral ratio>=150%.

In general, if an existing Asset portfolio's adjustment reduces its collateral ratio, the transaction is only executed if the resulting TCR is above 150%.

What is the Adjusted Collateral Ratio?

A Asset portfolio's Adjusted Individual Collateral Ratio or AICR is a ratio between collateral and debt giving additional weight to stablecoins.

ARAV = Adjusted_Safety_Ratio * Price * Collateral_Amount

AICR = ARAV / Asset portfolio_Debt

This calculation is similar to the Risk-Adjusted Value calculation except with a different ratio for each collateral. Stablecoin collaterals have an Adjusted Safety Ratio of 1.6 while other assets will have System Ratio = Safety Ratio. The idea is that we are comfortable with the full system being backed by low collateral ratio loans against yield-bearing stablecoins. But if PUST is mostly collateralized by riskier assets, we need a higher dollar value of those assets in the system vs. PUST issued.

What is the Total Collateral Ratio?

The Total Collateral Ratio or TCR is a number representing system safety and the value of the system collateral vs. the amount of PUST minted against it. The system will be in "recovery mode" if the TCR is below 150%. This calculation works like the AICR calculations above.

System Collateral Value = Adjusted_Safety_Ratio * Price * Collateral_Amount

TCR = Sum_of_System_Collateral_Values_for_All_Assets / Total_PUST_Debt

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 150%, and to incentivize PUST holders to replenish the Stability Pool.

Economically, Recovery Mode is designed to encourage collateral top-ups and debt repayments, and also itself acts as a self-negating deterrent: the possibility of it occurring actually 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 Asset portfolio safe in Recovery Mode?

By 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.

Can I be liquidated if my adjusted collateral ratio is below 150% in Recovery Mode?

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

How do liquidations work in Recovery Mode?

• ICR = Individual Collateral Ratio

• MCR = Minimum Collateral Ratio

• TCR = Total Collateral Ratio

• SP = Stability Pool

Condition	Liquidation Behavior
ICR <=100%	Redistribute all debt and collateral (minus ETH gas compensation) to active Asset portfolios.
100% < ICR < MCR & SP PUST > Asset portfolio debt	PUST in the Stability Pool is offset with the Asset portfolio's debt. The Asset portfolio's collateral (minus ETH gas compensation) is shared between stability pool depositors.
100% < ICR < MCR & SP PUST < Asset portfolio debt	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. The remaining debt and collateral (minus ETH gas compensation) is redistributed to active Asset portfolios.
MCR <= ICR & AICR < TCR & SP PUST >= Asset portfolio debt	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 1.1 * debt is shared between depositors. Nothing is redistributed to other active Asset portfolios. Since its ICR was > 1.1, the Asset portfolio has a collateral remainder, which is sent to the CollSurplusPool and is claimable by the borrower. The Asset portfolio is closed.
MCR <= ICR & AICR < 150% & SP PUST < Asset portfolio debt	Do nothing. Because there is insufficient PUST in the stability pool to fully offset, this Asset portfolio is not liquidated.
AICR >= 150%	Do nothing.

How much of a Asset portfolios collateral can 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. ​