6. Auctions
Auctions are one of the stability mechanisms employed by the Honzon protocol to maintain a strong peg between aUSD and US Dollar.
Surplus Auction
When business as usual, the Honzon protocol through the CDP Treasury would accrue interests in aUSD from each loan. This surplus will firstly cover any outstanding debt in the system. Whenever this surplus reaches a predefined limit, the surplus in aUSD will be auctioned off for ACA which will then be burnt.
Debt Auction
The CDP Treasury also keeps account of the system debt, that is if unsafe loans cannot be fully liquidated and debt cannot be fully repaid. If system surplus cannot cover the debt, then the Debt Auction will be triggered, and additional ACA could be minted to auction off to pay back outstanding aUSD debt.
Collateral Auction
Each aUSD loan is created with a required collateral ratio, and its collateral ratio needs to be above the liquidation ratio to stay safe. The liquidation ratio is lower than the required collateral ratio to create a safety zone for each loan and avoid immediate liquidation upon creation. If the price of a collateral drops to a point where a loan's collateral ratio is less than the liquidation ratio, then a Collateral Auction is triggered to sell off the collaterals to pay off the aUSD debt.
Surplus auction criteria
1. Outstanding debt is cleared: debitPool = 0
2. Surplus is over certain limit: surplusPool > surplusBufferSize + surplusAuctionFixedSize
This is checked each block. Whenever the criteria is met, a new auction is created.
External actors e.g. liquidators can monitor the NewSurplusAuction event.
Use Extrinsics - auction.Bid to participate in auction.
The Console UI is more as an illustration than useful, as liquidators would be more likely as a bot or participate via a DApp UI (coming soon).
Every new bid will increment bidding price more than the minimumIncrementSize, and extend auction time by the auctionTimeToClose. Until then if there is no more new bidders, the auction will close with the highest bidder winning. If the overall auction time reaches the auctionDurationSoftCap, then the auctionTimeToClose will half, and the minimumIncrementSize will double to expedite the process.
Monitor the AuctionDealed event for closing an auction.
[TODO] More events will be added.
Debit auction criteria
1. surplusPool == 0
2. debitPool >= totalDebitInAuction + get_total_target_in_auction + debit_auction_fixed_size
[TODO] more details
If a loan is unsafe, that is the collateral ratio of this loan is below the liquidation ratio, then it is deem to be liquidated by anyone with a reward.
Use Chain state -> cdpEngine -> liquidationRatio to check.
Use Extrinsics -> honzon -> liquidationPenalty to check penalty.
As an example, the liquidation ratio is 10%. It is applied on top of the debit amount and paid to the liquidator.
Use Extrinsics -> honzon -> liquidate to liquidate a loan at danger.
The liquidation action might trigger a collateral auction if it cannot complete the liquidation via Acala DeX within required slippage.
[TODO] more details on DeX.
You can monitor the NewCollateralAuction to participate in one.
The target price for the auction is made of amount owed + penalty. If bid price is greater than the target, then a reverse auction is triggered. Bidders would bid for the same price, how little asset they are willing to accept.