Liquidation

What is Liquidation?

Borrowers (minters) whose collateral rate falls below 150% of the minimum collateral rate must be liquidated to ensure that the eUSD stablecoin is fully backed by collateral assets.
During liquidation, the borrower's (minter's) debt is reduced, and liquidators receive the collateral asset in exchange for paying off the debt.
After liquidation, the borrower's (minter's) reduced debt is paid off, and the value of the remaining collateral equals 110% of the reduced debt.
It is highly recommended to always maintain a healthy collateral rate above 150%, preferably above 200%.

Liquidators

Liquidators are the first line of defense in preserving system viability. By becoming a liquidator, users can use their eUSD to settle any borrowers' (minters') debts at any time, maintaining the stability of eUSD and the total supply of eUSD. Liquidators are rewarded when liquidation proceeds.
When a borrower (minter) is being liquidated, up to 50% of the borrower's collateral is burned from the liquidator's balance to settle the debt. In return, the liquidator receives the collateral asset worth 109% of the value of the repaid eUSD, and at least 0.5% of the collateral asset goes to the Keeper.

Keepers

Any third party can operate a Keeper Program to monitor the state of each liquidator and borrower (minter) on the Lybra Protocol.
When a borrower needs to be liquidated, the Keeper can choose to do so immediately using eUSD supplied by the appropriate liquidator in exchange for 1% of the liquidated assets.

For example,

  • Alice deposits 10 ETH (~$14,800) and mints 10,000 eUSD against her collateral.
  • Alice's Collateral Rate = 100% * 14800 / 10000 = 148%
  • Alice is at risk of getting liquidated, and the maximum amount that can be liquidated is 5 ETH.
  • Bob is a Liquidator holding 3,000 eUSD.
  • Cathy is a Keeper and decides to conduct liquidation on Alice.
  • Bob, the liquidator, repays 3,000 eUSD on Alice's behalf and receives stETH = 3000 / 1480 * 109% = 2.209459, worth 3,270 eUSD.
  • Cathy, the Keeper, receives stETH = 3000 / 1480 * 1% = 0.02027, worth 30 eUSD.
  • Alice's updated debt is 10,000 - 3,000 = 7,000 eUSD, her collateral is 10 - 2.209459 - 0.2027 = 7.77 ETH, and her current collateral rate is 1480 * 7.77 / 7000 = 164%.

How Do I Benefit as a Liquidator?

If you are familiar with the entire process, you can perform a liquidation on borrowers (minters) using the official liquidation tool, earning a 10% liquidation reward.
You can also enable the liquidator feature, grant a third-party Keeper access to your funds, and allow them to carry out the liquidation process in exchange for a portion of the 10% liquidation reward (9% to the liquidator and 1% to the Keeper).

How to Become a Liquidator?

You can become a liquidator by simply activating the Liquidator Feature, which can be deactivated at any time to stop the automatic liquidation process.
By enabling the liquidator feature, you can earn an additional 9% arbitrage profit whenever your account's eUSD balance is automatically converted to more stETH through liquidation.

What is Overall Liquidation?

When the Lybra Protocol Overall Collateral Rate falls below 150%, any user with a collateral rate below 125% may be fully liquidated. In this scenario, the liquidator only needs to pay X eUSD to obtain X * (current collateral rate - 1%) from the liquidated borrower (minter), while the Keeper's reward remains at 1%.
Note: If the Collateral Rate of the liquidated borrower (borrower) is below (100% + Keeper's Reward Ratio), the liquidation provider will receive X * current CR (not less than 100%) of stETH, while the Keeper gets no reward in this case.
For example,
When Overall Liquidation Mode is activated:
  • Alice deposits 10 ETH (~$12,400), borrows 10,000 eUSD, and her collateral rate is 100% * 12400 / 10000 = 124%, which can be fully liquidated.
  • Bob provides 10,000 eUSD in exchange for Alice's 10 ETH collateral. Once the full liquidation is complete, Alice's updated debt and collateral are both 0.
By understanding and actively participating in the Lybra Protocol as a liquidator, redemption provider, or Keeper, you can benefit from the various mechanisms designed to ensure the stability of the eUSD stablecoin and protect the overall system. Always remember to maintain a healthy collateral rate to minimize the risk of liquidation and maximize the potential benefits of participating in the protocol.