- Once a vault is at risk: The liquidator pays 50% of the debt and the liquidated get that amount subtracted from the collateral + a 10% which is the bonus the liquidator gets. After everything is done, the liquidated has approximately 55% less of collateral value, 50% less of debt but keeps 100% the full value of the debt borrowed.
- Let me show with an example: Imagine an asset with 130% minimum CDR $1000 collateral $800 debt (1000/800)x100= 125% (CDR under minimum) This triggers liquidation and: ⁃ Debt is 50% paid — $400 ⁃ Same amount is subtracted from collateral + 10% = $440 ($40 is the liquidator profit) Now the CDR is as follows: $560 collateral $400 debt (560/400)x100 = 140% (over minimum CDR). However the original vault owner still has $800 worth of debt and owes only half of it.
- In the end the user has $1000 collateral minus $440 penalty plus $800 loan minus $400 reduced debt = $960
- 1000–960 = 40 (40/1000)*100 = 4% net loss
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