Recovery Mode

Recovery Mode kicks in when the total collateralization ratio (TCR) of the system falls below 130%.

During Recovery Mode, liquidation conditions are relaxed, and the system blocks borrower transactions that would further decrease the TCR. New debt may only be issued by adjusting existing Vaults in a way that improves their ICR or by opening a new Vault with an ICR of ≥130%. In general, if an existing Vault's adjustment reduces its ICR, the transaction is only executed if the resulting TCR is above 130%.

Recovery Mode is structured to incentivize borrowers to behave in ways that promptly raise the TCR back above 130% and to incentivize debt holders to replenish the Stability Pool.

Economically, Recovery Mode is designed to encourage collateral top-ups and debt repayments. It also acts as a self-negating deterrent: the possibility of it occurring actually guides the system away from ever reaching it.