Recovery Mode in Moonyield
Recovery Mode is a safety mechanism activated when the system’s total collateralization ratio (TCR) falls below 200%, indicating that the protocol is at risk of becoming under-collateralized. It is designed to protect the stability of MUSD and ensure the system remains solvent.
Key Features of Recovery Mode
Priority of Collateral Health:
Borrowing is restricted to ensure new loans improve the system's collateralization.
Only Vaults that bring the TCR closer to 200% are allowed to open or adjust.
Liquidation Adjustments:
Vaults with a collateral ratio below 200% are liquidated first, regardless of their size.
This incentivizes borrowers to maintain high collateral ratios, even during periods of market stress.
No Issuance of New Risk:
Borrowers are encouraged to strengthen their positions by increasing collateral or repaying debt.
Impact on Users
Borrowers: Must ensure their Vaults are over-collateralized (above 200%) to avoid liquidation.
Stability Pool Depositors: Benefit from increased rewards, as liquidations transfer collateral to the Stability Pool.
Recovery Mode helps maintain MUSD's stability and protects the protocol during volatile or adverse market conditions.
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