Liquidations
This page will give readers a better understanding of liquidations at Kairos Cash.
In Kairos Cash, every KASH is backed by a certain interest-bearing token (ibTKN). Unlike most protocols where all users' collateral is at risk of a liquidation event, here in Kairos Cash, each Collateralized Debt Position (CDP) is isolated and only at risk of its own individual liquidation.
To clarify, if a user opens two CDPs with different ibTKNs they are able to borrow KASHs versus those ibTKNs individually and set their risk tolerance accordingly. So if they believe a certain ibTKN has a higher chance of decreasing in value, they can choose to borrow less KASH versus that.
That being said, there are still times when a user's ibTKN value will decrease and be flagged for liquidation. In this event, 3rd party players (usually bots) can choose to repay all of the KASH debt in exchange for the ibTKN collateral used for that specific CDP.
You have some wsKRNO (an ibTKN). The current price per token of this collateral is $200.00. You are a mad man and decide to borrow the maximum allowance of KASH tokens. You are quoted a liquidation price of $169.67.
The lender has a bot set to watch this CDP to liquidate at a moment's notice.
As fate would have it, the price of wsKRNO drops to $169.67, and the collateral is no longer worth enough to cover the debt. So, the bots go to work on this CDP and liquidate it. The lender pays off the owed KASH by and takes the wsKRNO tokens into his possession. However, you are not terribly disappointed, as you still have possession of the KASH tokens and you no longer have to pay off your debt.
Each market has its own liquidation fee, but in general ibTKNs with underlying stable coins will have a liquidation fee of 3% and ibTKNS with price action will have a liquidation fee of 10%
Liquidation Fee Sharing - This fee is the incentive given to the parties performing liquidations. Furthermore, 10% of these collected fees are hard-coded to be set aside for the weekly sKREDIT rewards on particular pools.
From a user perspective, this fee is already considered in the calculations when quoting a liquidation price for the respective ibTKNs. When users' liquidation price is reached they are liquidated.
The liquidation price is the price of your collateral at which you will be liquidated. If your collateral value decreases to a point where the liquidation price matches the price of the token that is used as collateral, your position will be flagged for liquidation. The contract will not allow liquidators to perform liquidation above the liquidation price, meaning that the user's collateral is safe up until the stated total liquidation price.
There are a few important points of note regarding liquidations that should be highlighted very clearly. These points set Kairos Cash apart and can determine whether users will be liquidated.
- Kairos Cash uses ibTKNs that go up in value on their own regardless of price action.
- KASH has interest so, if a collateral, for some reason or another, does not increase in value, liquidations can happen. To reduce this risk, the team has selected ibTKNs that have a track record of increasing in value at a rate that far exceeds the interest rate on KASH debt.
- The price action of underlying tokens in some of the ibTKNs can be quite volatile. To reduce this risk, the team has set tokens that have price action to have a Maximum Collateral Ratio (MCR) of 75%
- Kairos Cash allows for the use of ibTKNs with underlying stable coins as collateral with an MCR of 90%. Although it may be unlikely that these ibTKNs will decrease in USD value, it’s not an impossibility as the underlying tokens may lose their price pegs from unforeseeable events.
- Although any person can perform a liquidation, it has become standard that these functions are performed by bots. Because of this, there is no need for a UI on the main site for this function.
Last modified 1yr ago