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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What You Lose in Liquidation

  • Your position (Trove) is closed.
  • The collateral required to cover your outstanding MEAD debt is seized.
  • Crucially: You do not lose all your collateral. Any collateral exceeding the value of your debt is typically returned to you, minus any gas fees associated with the transaction, although this can vary slightly based on network conditions and precise liquidation values.

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2. How to Minimize Risks

Regularly check your position on the Roots dashboard and consider using monitoring tools to receive alerts if your CR drops significantly.