Liquidate/Get Liquidated

A user can be liquidated when their borrow value has exceeded their max borrow or take advantage of the misfortune of other users when they are liquidated...

Liquidation is a vital defense mechanism for the GARD Protocol. While it is not the desired outcome for any of its users, it's a necessary process that may deter users from under-collateralizing their positions as well as restoring balance to the protocol if the value of their collateral plus interest accrued becomes to high in respect to the collateral they provided.

If the value of GARD borrowed plus accrued interest becomes worth more than 115% of the collateral deposited in a user's vault, this will trigger a liquidation. Upon liquidation, a user will lose claim to any collateral deposited in their vault, however, they will not lose whatever GARD they may have minted if it has not been spent. Liquidations are a vital part of the protocol to maintain the promise that GARD is stable, overcollateralized, and valuable thanks to it being backed by intrinsically valuable collateral.

There are two ways that liquidations may take place, the system has been designed to be the most fair to all potential protocol users and not just those that are tech-savvy or with deep pockets. The first line of “defense” will be a staking pool where users will be able to stake their GARD, earn whatever staking rewards are promised by no-lock staking (explained below), and buy up any positions that are liquidated distributed evenly by users’ stake in the pool at a 7.5% discount. These liquidated assets will be automatically swapped back to GARD (if possible) and the added GARD will essentially be an extra APY to these stakers.

If the staking pool runs out of GARD, or for whatever reason doesn’t have enough GARD to successfully liquidate a position, then the liquidated position will be auctioned off. This auction process is a Dutch Auction system similar to that of MakerDAO that will sell the collateral through the Auctions page of the protocol for GARD, ensuring there is always enough collateral locked in the system for the GARD in circulation because the discount on the collateral will facilitate an arbitrage opportunity for the right user. These two processes will be outlined in the following pages: