WaykiChain(WICC) Stablecoin Good to Know (5)|Stability Mechanism
Because crypto price fluctuates all the time, so do the values of stable systems’ mortgage assets. The mortgage rate changes in this way. The system will perceive the mortgage rate corresponding to all CDP in real time. When the call rate falls to 150% or below (a particular mortgage rate of 150%, also known as the liquidation rate),this CDP is defined by the system as an exception state and vice versa, as a security state. In order to guarantee that there are enough assets behind each issued WUSD to endorse it, abnormal CDP needs to be liquidated in time.
Normal CDP belongs to the mortgagor, and only the mortgagor can redeem it. CDP will enter the compulsory liquidation pool, and anyone can initiate liquidation. To liquidate CDP does not acquire any interest, but a penalty with the rate of 13%. In addition, in order for the liquidation to be completed quickly, the liquidated assets will be sold to the liquidator at a discount of 97%. There are three theoretical scenarios, depending on the mortgage rate at the time of the liquidation:
1. The mortgage rate is 113%~150%
The mortgage assets loaned 113% of the WUSD will be sold to the liquidator, who will pay back the system, so this part of mortgaged assets can be obtained by the liquidator. In that case, WUSD with the same amount of loan value will be destroyed, and the remaining 50% will be put into the margin pool, and 50% will be use to buy WGRT on a decentralized Exchange, and then self-destruct. Unsold mortgage assets are going to be returned to the mortgagor.
2. The mortgage rate is about 103%~113%
The mortgage assets will be sold to the liquidator and no remaining assets will be returned to the mortgagor. The WUSD provided by the liquidator to the system also meets the liquidation demand of CDP first, and the remaining part is exchanged into WGRT, and then will be destroyed. The difference is that the actual penalty rate is between 3% -13%.
3. The mortgage rate is about 0%~103%
The system will use WUSD in the Risk Reserve Funding Pool to close out the insolvent CDP. Then the assets released by the CDP are converted into WUSD in the decentralized Exchange, and at the same time, It also issues additional WGRT to convert into WUSD in the decentralized Exchange (the additional amount is not provided by the current CDP. After the completion of the transaction, both parts of WUSD shall be returned to the Risk Reserve Funding Pool.
Risk Reserve Funding Pool
The systemic risk is that the volatility of mortgage asset prices may lead to the insolvency of abnormal CDP. Thus this risk defense mechanism is essential. In liquidation, the liquidator mechanism is the first risk defense in the system, and Risk Reserve Funding Pool are the second defense. WUSD is stored in the Risk Reserve Fund. The sources of WUSD are mainly divided into two parts: A)The assets raised when the WGRT issued will be exchanged for risk reserves; B) When the system has been liquidated , a portion of the penalty will be put into Risk Reserve Funding Pool.