Liquidation

A key stabilizing mechanic of Aurelius is liquidations. A liquidation occurs when a collateral ratio falls below the minimum required amount. In the event of liquidation, a position will be closed by the system, debt repaid, and collateral forfeited to the Stability Pool depositors.

Liquidations occur at different collateral ratios for different collateral types, and each pool has its own liquidation parameters. These parameters are based on the associated collateral type’s risk profile. These are detailed in the Collateral section.

Liquidation Example (Stability Pool)

Say there is a total of 1,000,000 aUSD in the Stability Pool and your deposit is 100,000 aUSD.

A position with debt of 200,000 aUSD and collateral of 23.6 BTC is liquidated at a BTC price of $10,000. The collateral ratio in this case is 118%.

Given that your pool share is 10%, your deposit will go down by 10% of the liquidated debt (20,000 aUSD). In return, you will gain 10% of the liquidated collateral (2.36 BTC), which is currently worth $23,600. Your net gain from the liquidation is $3600.

Depositors can immediately withdraw the collateral received from liquidations and sell it to reduce their exposure.

What happens if the Stability Pool is empty when liquidations occur?

If the Stability Pool is empty, the system uses a secondary liquidation mechanism called redistribution. The system redistributes the debt and collateral from liquidated positions to all other existing positions. The redistribution of debt and collateral is done in proportion to the recipient collateral amounts.

Liquidation Example (Empty Stability Pool)

The example below demonstrates the redistribution of a position that is liquidated at 108% CR, assuming the Stability Pool is empty.

To avoid liquidation, users should ensure their positions stay above respective minimum collateral ratios. In practice this means checking positions regularly and adding collateral or paying off debt as needed.