Liquidation FAQ’s

  • Liquidation ensures intrinsic value for the Synths, by enabling direct redemption of the underlying collateral. This gives synth holders confidence that the assets they hold can be directly exchanged for the OKS backing them, therefore, maintaining the active collateralization ratio at the issuance ratio level.
  • This, in turn, creates stronger incentives for a healthy active collateralization ratio (visible on our Stats page), as other participants can actively improve the active collateralization ratio by directly redeeming undercollateralized Synths for OKS.
  • It provides a solution to staking wallets that have been abandoned or whose private keys have been lost, as they will no longer drag down the active collateralization ratio.
  • If a staker’s collateralization ratio drops below 200%, then their wallet will be flagged as at-risk and subject to a 14 days’ time delay. During this period, they can either add more OKS collateral or burn oUSD to increase their collateralization ratio back to 500%.
  • If, after the two-week time delay period, the OKS staker’s collateralization ratio is still below the target of 200%, their OKS can be liquidated.
  • Anyone (e.g., William) can contribute to the liquidation of an under-collateralized staker (e.g., Pedro). William calls the liquidateDelinquentAccount function, which burns his Synths, unlocks some of Pedro’s staked OKS, and sends this OKS to William. These amounts are determined by the liquidation penalty, which determines what kind of bonus OKS William receives for liquidating Pedro.
  • Pedro can only be liquidated up to a collateralization ratio of 500%.
  • The risk for stakers is that should they fail to manage their collateralization ratio, then if it crosses the liquidation threshold, they have a period of time (currently 14 days) to fix it before they risk losing some of their OKS collateral.
  • If the OKS price could somehow be manipulated to decrease dramatically, it would need to be kept low for 14 days for the staker’s OKS to be at risk.
  • Target collateralization-ratio: 500%
  • Liquidation ratio: 200%
  • Liquidation penalty: 10%
  • Liquidation delay: 14 days
  • OKS value: $0.005
O = (r * D — V) / (r — (1 + P) 
  • O = oUSD debt required to burn to fully fix Pedro’s collateralization ratio
  • r = target C-Ratio (e.g., 5)
  • D = debt balance (e.g., 333)
  • V = value in USD of staked OKS (e.g., $1250)
  • p = liquidation penalty (e.g. 0.1)
R = (O * (1 + P)) / Q 
  • R = OKS liquidation reward
  • O = oUSD debt required to burn to fully fix Pedro’s collateralization ratio (e.g., 106.410256410)
  • P = liquidation penalty (e.g., 0.1)
  • Q = OKS Market Price ($0.005)
  • In this scenario, Pedro’s debt is reduced to 226 oUSD, and he still has 226,000 OKS staked, with a collateralization ratio of 500%.

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