Liquidation
Liquidation refers to the process where collateral is automatically sold, and the sales proceeds are recovered to the money pool, when the value of the collateral for a loan is assessed below the Loss cut ratio.
Background and Necessity
Implementing a liquidation logic is crucial when borrowing against RWAs as collateral, especially to account for a decrease in collateral value or default. Unlike simple virtual asset-based collateral loans, RWAs, which are based on real world assets, require a liquidation process in the real world as well. Therefore, we have designed the system such that the liquidation process is automatically triggered if the loan's repayment date passes or if the value of the collateral decreases.
Process
When liquidation occurs, the collateral deposited by the borrower is forcibly sold. The loan amount from the sale is transferred to the money pool to supply liquidity, and any remaining amount is sent to the borrower. A portion of the difference serves as a penalty and is given as a reward to participants in the liquidation process.
Moreover, the liquidation process varies depending on the type of real world asset. For RWA tokenized loan receivables (principal and interest receivable rights), the liquidation process is as follows:
RWA NPL (Non-Performing Loan) Open Market Listing: If the borrower fails to repay the loan to the Money Pool even after the maturity date recorded in RWA has passed, the RWA is automatically listed on the NPL Open Market.
NPL Buyer Purchases RWA: An NPL buyer can purchase the RWA listed on the NPL Open Market at a discounted price based on the pre-agreed terms.
NPL Buyer Repays RWA Loan: When the NPL buyer transfers the purchase price of the RWA to the Money Pool, the loan is repaid, and the collateral loan associated with that RWA is concluded.
Debt Collection: The NPL buyer can present the RWA to the original owner of the real-world asset that requested its issuance and demand loan repayment, i.e., proceed with debt collection.
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