CherryLend incorporates a comprehensive liquidation structure to safeguard the interests of lenders and maintain the platform's financial stability. This structure outlines the circumstances under which liquidation can occur and the subsequent processes involved.
Liquidation within CherryLend is triggered under two distinct scenarios, ensuring protection for lenders while providing clarity and fairness in the execution of these procedures.
There are 9 liquidators, however the system is developed to be able to add more liquidators as we see fit. The 9 liquidators are well-known pool operators, namely BBHMM, ELEMENTAL, APEX, PSB, BSP, NEXUS, OTG, SPIRE, and SEAL.
These 9 liquidators are allocated a total of 1.5% of CHRY tokens from the incentives allocation with the same vesting schedule as Team to ensure security.
A majority (5/9) confirmations are needed for a liquidation to be processed.
1. Liquidation by Duration Expiration
Trigger Event: This type of liquidation occurs when a borrower fails to repay the loan within the stipulated time frame.
Lender's Right: In such cases, the lender is granted the authority to seize the collateral that was placed to secure the loan.
Once the loan duration expires without repayment, the lender is granted the option to initiate the liquidation process.
The lender may then proceed to claim the collateral in lieu of the unpaid loan amount.
2. Liquidation by Collateral Price
Trigger Event: This liquidation is triggered when the ratio of the collateral factor to the loan health reaches a predefined liquidation threshold.
Lender's Action: The lender has the opportunity to request liquidation upon the collateral price meeting this threshold.
Upon a liquidation request by the lender, CherryLend initiates a series of calls to external oracles.
These oracles are responsible for validating the current market conditions and confirming that the liquidation threshold has indeed been met.
After validation, the oracles sign off on the liquidation transaction, authorizing the lender to take possession of the collateral.
The liquidation structure at CherryLend is designed to provide a clear, regulated, and equitable process for both lenders and borrowers. By incorporating triggers based on duration expiration and collateral price, coupled with oracle validation, CherryLend ensures that liquidations are executed fairly and transparently. This approach not only protects the lenders' investments but also upholds the integrity of the platform's lending practices.