Protocol Mechanics
Risk Management System
Collateral Ratios
Each collateral type has specific safety requirements:
- Safety Ratio: Point at which user can no longer borrow more
- Liquidation Ratio: Point at which liquidation occurs
Price Feeds
Collateral prices are updated with a 1-hour delay, giving users time to react to market changes before liquidation risk.
Current Collateral Parameters
| Collateral Type | Fee, % | Safety Ratio % | Liquidation Ratio, % | Minimum Debt, AZUSD |
|---|---|---|---|---|
| KLIMA | 5% | 150% | 120% | 1 |
| USDGLO | 5% | 111% | 105% | 1 |
| HLSP | 5% | 111% | 105% | 1 |
Liquidation Process
When Liquidation Occurs
A safe becomes eligible for liquidation when its collateral value falls below the liquidation ratio for that collateral type.
Liquidation Mechanics
- Seizure: Collateral is automatically seized from the unsafe position
- Auction: Collateral is sold through a Dutch auction system
- Penalty: Additional fee (5% for current collaterals) is charged
- Tip: Liquidators receive gas costs + 25 AZUSD as incentive
Auction System
- Type: Dutch (decreasing price) auction
- Duration: 5 days maximum
- Discount Range: 1% to 20%
- Price Reduction: Linear decrease over auction period
Liquidation Parameters
| Type | Safe Ratio % | Liq. Ratio, % | Liq. Penalty, % | Discount Range, % |
|---|---|---|---|---|
| KLIMA | 150% | 120% | 5% | 1-20% |
| USDGLO | 111% | 130% | 5% | 1-20% |
| HLSP | 111% | 170% | 5% | 1-20% |
System Revenue
Fee Collection
Stability fees generate revenue for the protocol, which is used for:
- System maintenance and oracle updates
- Surplus buffer maintenance
- AZOS token buyback and burn
Emergency Mechanisms
In extreme market conditions, the protocol can mint new AZOS tokens to cover bad debt, protecting the system's solvency.