Examples

Every bitcoin block, the Protocol's unsterilisedDebt will be liquidated via public auction. In this process, the Protocol uses its accumulated BTC reserves to buy back UNIT from the market until the balance of unsterilisedDebt returns to zero. unsterilisedDebt can come from several different sources, but the clearing mechanism remains the same in each use-case.

Example 1: Successful Decentralised Auction

Continuing from the last example, Alice and Tom successfully purchased 89.4 of BobVault's UNIT, leaving Ʉ10.6 of unpaid debt. This Ʉ10.6 is added to the Protocol's unsterilisedDebt balance.

When BobVault was liquidated, the Protocol also levied a 16% liquidation tax (Ʉ20) on Bob's vault, which was transferred to the Protocol's Reserve.

For every BTC block, the Protocol offers users up to $1.05 of BTC per UNIT of unsterilisedDebt from the auctionReserve.

Example 2: Unsuccessful Decentralised Auction

If no Liquidators participate in the Auction, the Protocol assumes BobVault's U105 of BTC alongside the U20 liquidation tax. The Protocol must sterilise Bob's entire U100 loan to bring the Protocol's broader collateralisation ratio (ex-BobVault's loan) back into balance.

In this instance, BobVault's entire U100 of loans is added to the rolling balance of unsterilisedDebt, which the Protocol will buy back at a premium of 1-5% every Bitcoin block.

Example 3: Redeeming External UNIT

If Bob sells his UNIT to someone else off-platform for something else, that user may return to the Protocol to redeem his UNIT for BTC. In this case, the redeeming user will instantiate a Redeemer Vault, in which his UNIT will be escrowed and added to the unsterilisedDebt balance, to be auctioned at the next block.