The Rolling Debt Auction

When a Borrower defaults on his UNIT debt, collateralised by an insufficient quantity of BTC vis-a-vis the Liquidation Threshold, and their UNIT is off-protocol, the Protocol needs to 'sterilise' the equivalent amount of circulating UNIT immediately to rebalance the total circulating supply of UNIT and the total amount of Collateral.

Roughly every 10 minutes (every BTC block), there will be a Rolling Debt Auction for the Protocol's balance of unsterilisedDebt, the cumulative amount of UNIT which was not liquidated to third parties via Decentralised Liquidation Auctions. In a Rolling Debt Auction, the Protocol bids auctionReserve/unsterilisedDebt for all unsterilised UNIT. It is designed but may not always pay a premium of $1 for all unsterilised debt, as the Protocol needs to clear unsterilised debt immediately to minimise the Protocol's exposure to duration risk to (ideally) 1 BTC block.

The Auction will scale from $1.01 to $1.05 over the time period. As with the Liquidation Auction, users will pre-bid at various rates, and the Auction will clear once every BTC block (once every 10 minutes).

The Debt Auction is the primary mechanism by which UNIT/USDT convertibility is maintained.