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.
Risk Management
Understanding the risks associated with using Roots is essential for safe participation. This section details liquidation mechanics, penalties, and how to protect your positions.
1. Liquidation Mechanics
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.
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.
2. How to Minimize Risks
Maintain a Safety Buffer
Maintain a Safety Buffer
Emergency Options
Emergency Options
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.
Risk Management
Understanding the risks associated with using Roots is essential for safe participation. This section details liquidation mechanics, penalties, and how to protect your positions.
1. Liquidation Mechanics
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.
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.
2. How to Minimize Risks
Maintain a Safety Buffer
Maintain a Safety Buffer
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.
Emergency Options
Emergency Options
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.