Risk & Liquidation

Woodrip Protocol implements a robust risk management system to mitigate its risks and safeguard the interests of liquidity providers. When an account's collateral rate turns negative, the protocol will initiate a liquidation process. The assets supplied by the account will be liquidated by other protocol users to repay the outstanding borrow and uphold the protocol's over-collateralization requirements.

During the liquidation process, the collateral of the liquidation account becomes an exchangeable asset at the prevailing market price. Anyone (known as the liquidator) can repay the outstanding borrow of the borrower's account in exchange for their collateral as a liquidation reward.

The Dripool Protocol defines the required collateral as the liquidation collateral rate, currently set at 110%. If an account's collateral rate falls below the liquidation collateral rate, the account's liquidity value turns negative. This situation occurs when the value of an account's outstanding borrow exceeds its borrowing capacity.

Any address within the network can participate in the liquidation process without dependency on a centralized system. On a first-come-first-served basis, the liquidator can address the liquidation account's outstanding borrow.

When an account's borrow collateral rate significantly drops below the liquidation collateral rate, reaching below 102%, the account will be subjected to a margin call. In such cases, Dripool Protocol's designated liquidator will handle the liquidation process for the account. Margin call-induced liquidations result in losses. Consequently, the liquidators must pay a 6% fee into a liquidation smart contract, known as the Dripool Liquidation Reserve. This reserve will be used for future margin calls.