Loan Liquidation
The loan liquidation mechanism that Davos Protocol implements ensures that if the TVL of the user’s collateral ever falls below the amount of DAVOS the user withdraws then their position will be liquidated. This ensures that the protocol without-fail is over-collateralized and fully backed by MATIC/ankrMATIC.
You can track if any of your positions are close to being liquidated in the web app under the Liquidation section of the navigation bar.

Liquidation Model
The liquidation mechanism is applied to ensure that DAVOS remains fully backed by MATIC collateral. When the price of your collateral goes under a certain value, the liquidation process may be triggered and your collateral may be sold in a Dutch auction.
The liquidation model is best described by the following example:
Step/Variable | Value |
---|---|
Price of 1 unit of collateral | $2 |
Liquidation ratio | 66% |
Price of collateral with liquidation ratio | $1.32 |
User deposits 10 units of collateral | 10 * 2 = $20 |
Borrow limit | user_deposit * liquidation_ratio = 20 * 0.66 = $13.2 |
User borrows $13 of DAVOS | 13 DAVOS |
Price of 1 unit of collateral decreases and now is | $1.8 |
Collateral unit price, with safety margin | _current_price_of_collateral_unit * liquidation_ratio = 1.8 * 0.66 = $1.188 |
Current worth of collateral, with safety margin | price_of_colatteral_with_safety_margin * amount_of_collateral = 1.188 * 10 = $11.88 |
Trigger for liquidation | borrowed_amount - current_worth_of_colateral = 13 - 11.88 = $1.12, which is >$0 |
Somebody starts a Dutch auction to liquidate the collateral. Starter is sent tip + chip as a reward for it, from Davos reserves | 5 + (14.69 * 0) = $5 |
User collateral that goes to Dutch auction | 10 units |
Liquidation penalty (fixed by Davos governance) | 13% of the debt |
Debt to cover in the auction | borrowed_amount * liquidation_penalty = 13 * 1.13 = $14.69 |
buf (percentage similar to liquidation penalty, fixed by Davos governance) | 2% |
top (start auction price of 1 unit of collateral) | current_price_of_collateral_unit * buf = 1.8 * 1.02 = $1.836 |
Auction starts and price gradually decreases. Anybody can come and buy any amount of the liquidated collateral | |
tau (time in seconds until price is 0; fixed by Davos governance) | 21600 |
dur (time in seconds elapsed since the auction start; fixed by Davos governance) | e.g. 600 |
Linear decrease of price of 1 unit of collateral | top * ((tau - dur) / tau) = 1.836 * ((21600 - 600) / 21600) = $1.785 after 600s of the auction |
Somebody restarts the auction based on: — tail (specific amount of time elapsed; fixed by Davos governance) OR — cusp (% of price drop; fixed by Davos governance) | — — 40% of top = 0.40 = $0.7344 |
tip (flat fee given as a reward to auction starter/restarter; fixed by Davos governance) | 5 DAVOS |
chip (dynamic fee given as a reward to auction starter/restarter; fixed by Davos governance) | 0 |
Restarter is sent tip + chip as a reward, from Davos reserves | 5 + (14.69 * 0) = $5 |