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Understanding the risks associated with using Roots is essential for safe participation. This section details liquidation mechanics, penalties, and how to protect your positions.

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1. Liquidation Mechanics

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When Does Liquidation Occur?

A position becomes eligible for liquidation when its Collateral Ratio (CR) falls below the Minimum Collateral Ratio (MCR) defined for that specific collateral type (see Parameters Table in Getting Started).
  • You deposit 200 worth of WBERA-HONEY LP (MCR 150%).
  • You borrow 100 MEAD (Initial CR = 200%).
  • If the value of your WBERA-HONEY LP drops below 150 (e.g., to 149), your CR falls below the 150% MCR.
  • Your position is now eligible for liquidation.

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How Liquidations Work

Liquidations are processed primarily through the Stability Pool:
1

Stability Pool Priority

MEAD deposited in the Stability Pool is used first to repay the liquidated debt. Example: Stability Pool depositors might burn 100 MEAD to cover your debt and receive your ~149 worth of WBERA-HONEY LP as compensation.
2

Trove Redistribution (Fallback)

If the Stability Pool is empty, the debt and collateral are redistributed proportionally among all other active borrowers (Troves). This is a secondary mechanism.

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2. How to Minimize Risks

Actively monitor your Collateral Ratio. It’s highly recommended to maintain a healthy buffer above the MCR for your collateral type.
  • Example: If the MCR is 150%, aim to keep your CR at 180%, 200%, or higher to absorb price volatility.
If your CR is approaching the MCR, you have several options:
  • Add More Collateral: Deposit additional supported assets into your Trove at any time via the deposit page.
  • Repay MEAD Debt: Repay some or all of your outstanding MEAD debt. Repayment has a 0% fee.
Regularly check your position on the Roots dashboard and consider using monitoring tools to receive alerts if your CR drops significantly.