⛑️Recovery Mode

WEN Protocol utilizes an identical way as Liquity to handle extremely downside market conditions.

It is clearly prudent to take all precautions.

What is Recovery Mode?

Recovery Mode activates when the Total Collateral Ratio (TCR) of the system drops below 150%. During Recovery Mode, Troves with a collateral ratio below 150% can be liquidated recursively from lowest CR.

Additionally, the system blocks minting transactions that would further decrease the TCR. New wenUSD may only be issued by adjusting existing Troves in a way that improves their collateral ratio, or by opening a new Trove with a collateral ratio of at least 150%.

In general, if an existing Trove's adjustment reduces its collateral ratio, the transaction is only executed if the resulting TCR is above 150%.

What is the Total Collateral Ratio(TCR)?

Total Collateral Ratio(TCR) is defined as follows:

$$Tocal\ Collateral\ Ratio=\frac{\sum_{i}^{users}Value_{i's\ Collateral}}{\sum_{i}^{users}Value_{i's\ DebtAndAnnualFee}}$$

It is the sum of the collateral of all Troves expressed in USD value, divided by the debt and annual fee of all Troves expressed in wenUSD, reflecting the overall health condition of the system.

What is the purpose of Recovery Mode?

The aim of Recovery Mode is to motivate users to act quickly to raise the Total Collateral Ratio back above 150%, and to motivate wenUSD holders to refill the Stability Pool.

Recovery Mode is meant to encourage adding more collateral and repaying debt, and the possibility of it happening actually helps the system avoid reaching that point in the first place.

Recovery Mode is not a desirable situation for the system to be in.

How it works during Recovery Mode?

Everything will be identical as Liquity, since Liquity sailed smoothly through the market crushes during mid May 2021 and others.

Recovery Mode is only a theoretic scenario for the robustness of the system.