Recovery Mode

What is recovery mode?

Recovery Mode activates when the Total Collateral Ratio (TCR) of the system drops below 110%. During Recovery Mode:

• vaults with a collateral ratio below 130% can be liquidated.

• Borrower transactions that would further decrease the TCR are blocked.

• New $AXUSD issuance is permitted only if it improves existing vaults' collateral ratios or if new vaults are opened with a collateral ratio of 150% or higher. Adjustments to existing vaults that decrease their collateral ratio are executed only if the resulting TCR remains above 130%.

What is the Total Collateral Ratio (TCR)? The TCR is the ratio of the Dollar value of the entire system collateral to the entire system debt. It represents the sum of all vaults' collateral in USD divided by the debt of all vaults in $AXUSD.

What is the purpose of Recovery Mode? Recovery Mode aims to prompt borrowers to raise the TCR above 130% promptly and encourages $AXUSD holders to replenish the Balancer Pool. Economically, it incentivizes collateral top-ups and debt repayments, serving as a deterrent from reaching this state.

What are the fees during Recovery Mode? While Recovery Mode does not affect the redemption fee, the borrowing fee is reduced to 0.1% to encourage borrowing.

How can I make my vault safe in Recovery Mode? Ensuring your vault's collateral ratio is at least 150% protects it from liquidation. You can achieve this by adding collateral, repaying debt, or both.

Can I be liquidated if my collateral ratio is below 130% in Recovery Mode? Yes, you can be liquidated if your vault's collateral ratio falls below 130% during Recovery Mode. To avoid liquidation in both Normal and Recovery Modes, maintain a collateral ratio above 130%.

How do liquidations work in Recovery Mode? Liquidations in Recovery Mode consider the

Individual Collateral Ratio (ICR), Minimum Collateral Ratio (MCR), Total Collateral Ratio (TCR), and the Balancer Pool (BP).

How much of a vault’s collateral can be liquidated in recovery mode? In Recovery Mode, a vault's liquidation is limited to 130% of its collateral. Any excess collateral above 130% (but below the TCR) can be retrieved by the borrower through the usual web interface. This implies that in Recovery Mode, borrowers experience the same 10% liquidation penalty as in Normal Mode if their vault undergoes liquidation.