Safe Mode

What is Safe Mode?

Safe Mode kicks in when the Total Collateral Ratio (TCR) of the system falls below 150%.

During Safe Mode, Troves with a collateral ratio below 150% can be liquidated.

Moreover, the system blocks borrower transactions that would further decrease the TCR. New dCNY may only be issued by adjusting existing Vaults in a way that improves their collateral ratio, or by opening a new Trove with a collateral ratio>=150%. In general, if an existing Troves adjustment reduces its collateral ratio, the transaction is only executed if the resulting TCR is above 150%.

What is the Total Collateral Ratio?

The Total Collateral Ratio or TCR is the ratio of the CNY value of the entire system collateral at the current ETH:USD & USD:CNY price, to the entire system debt. In other words, it's the sum of the collateral of all Vaults expressed in CNY, divided by the debt of all Troves expressed in dCNY.

What is the purpose of Safe Mode?

The goal of Safe Mode is to incentivize borrowers to behave in ways that promptly raise the TCR back above 150%, and to incentivize dCNY holders to replenish the Stability Pool.

Economically, Safe Mode is designed to encourage collateral top-ups and debt repayments, and also itself acts as a self-negating deterrent: the possibility of it occurring actually guides the system away from ever reaching it. Safe Mode is not a desirable state for the system.

What are the fees during Safe Mode?

While Safe Mode has no impact on the redemption fee, the borrowing fee is set to 0% to maximally encourage borrowing (within the limits described above).

How can I make my Trove safe in Safe Mode?

By increasing your collateral ratio to 150% or greater, your Trove will be protected from liquidation. This can be done by adding collateral, repaying debt, or both.

Can I be liquidated if my collateral ratio is below 150% in Safe Mode?

Yes, you can be liquidated below 150% if your Troves collateral ratio is smaller than 150%. In order to avoid liquidation in Normal Mode and Safe Mode, a user should keep their collateral ratio above 150%.

How do liquidations work in Safe Mode?

• ICR = Individual Collateral Ratio

• MCR = Minimum Collateral Ratio

• TCR = Total Collateral Ratio

• SP = Stability Pool

Condition	Liquidation Behavior
ICR <=100%	Redistribute all debt and collateral (minus ETH gas compensation) to active Troves.
100% < ICR < MCR & SP dCNY > Vault debt	dCNY in the Stability Pool equal to the Troves debt is offset with the Vault's debt. The Troves ETH collateral (minus ETH gas compensation) is shared between depositors.
100% < ICR < MCR & SP dCNY < Vault debt	The total Stability Pool dCNY is offset with an equal amount of debt from the Trove. A fraction of the Troves collateral (equal to the ratio of its offset debt to its entire debt) is shared between depositors. The remaining debt and collateral (minus ETH gas compensation) is redistributed to active Troves.
MCR <= ICR < 150% & SP dCNY >= Vault debt	The Stability Pool dCNY is offset with an equal amount of debt from the Trove. A fraction of ETH collateral with dollar value equal to 1.1 * debt is shared between depositors. Nothing is redistributed to other active Troves. Since its ICR was > 1.1, the Trove has a collateral remainder, which is sent to the CollSurplusPool and is claimable by the borrower. The Trove is closed.
MCR <= ICR < 150% & SP dCNY < Vault debt	Do nothing.
ICR >= 150%	Do nothing.

How much of a Vaults collateral can be liquidated in Safe Mode?

In Safe Mode, liquidation loss is capped at 110% of a Troves collateral. Any remainder, i.e. the collateral above 110% (and below the TCR), can be reclaimed by the liquidated borrower using the dAPP or by calling the smart contract directly.

This means that a borrower will face the same liquidation “penalty” (10%) in Safe Mode as in Normal Mode if their Trove gets liquidated.