Liquidation at Linear

Liquidation at Linear

Mar 26, 2021 · 2 min read · cat

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To our Linear Users:

We are introducing liquidation to our Linear protocol which will go into effect on April 2nd, 2021. The inclusion of a liquidation mechanism in Linear protocol not only safeguards our debt pool, stakers, and LUSD holders but also opens the door to adding additional functionality such as shorting our synthetic assets and leverage. The details of our liquidation mechanism is as follows:

Our initial Liquidation v1.0 will be protocol driven where Linear will act as the “Liquidator”. In the next iteration of the Liquidation mechanism, we will allow users to be the Liquidator.

A staking account becomes eligible to be liquidated if its pledge-ratio (P-ratio) is under the minimum threshold that needs to be maintained.

  1. An account is eligible for liquidation when its P-ratio is under 200%. When this occurs, the account will be “marked” by the protocol and on Buildr, under the “Current Pledge Ratio” the arrow will be pointing to the red portion of the bar. If the arrow is pointing to the yellow portion of the bar, it means your P-Ratio is between 200% and 500%. If the arrow is pointing to the blue portion of the bar, it means your P-Ratio is above 500% and healthy.
  2. Marked stakers have a 72 hour time frame to deposit additional LINA or burn ℓUSD to return their account to above a 500% P-ratio.

If the P-ratio of the marked account fails to return to above 500 within the 72-hour time frame, the account would be liquidated.

When liquidation is triggered:

  1. In terms of priority of liquidation, staked LINA will be liquidated first followed by liquidation of locked LINA if needed. If locked LINA are liquidated, they will be transferred to Linear Foundation’s account as locked status.
  2. The liquidated collateral (LINA) will be converted into ℓUSD, prices will be determined by the oracle at the time the liquidation happens. This action will restore the P-ratio of the staker being liquidated to 500%.
  3. When the P-ratio restores to 500% after liquidation, the position will be unmarked.
  4. In order to maintain the stability of our protocol, a 15% penalty fee in LINA will be applied on every liquidation triggered.
  5. From the penalty fees generated from liquidation, 25% will be returned to the Reserve account to be locked. (Remember, use of Reserve account tokens will be determined by the DAO) with the remaining 75% to be sold into BUSD/USDC and held in a “Liquidity Fund” that will be used to back LUSD.

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