Auction
When a Vault is liquidated, it triggers an auction of the collateral.
There are three types of auctions:
Collateral auction: initiated when the value of the collateral is about to trigger the liquidation level.
Debt auction: in extreme market conditions, when the price of collateral plummets and the system's debt has already formed, it is necessary to auction off the debt to restore the balance of the system's assets and liabilities.
Surplus auction: initiated when the assets in the treasury reach a certain amount, to recycle the UN back into the treasury.
Collateral Auction
When the value of a Vault's assets falls to the liquidation level, anyone can call the smart contract to transfer the assets and liabilities of this Vault to the protocol (i.e., the auction contract). The auction winner can obtain the Vault's collateral by repaying TINU.
Debt Auction
When the debt becomes a reality, in the collateral auction, the debt value of TINU is far greater than the value of the collateral, at which point no one will participate in the collateral auction. For the difference in the value of the collateral, the protocol needs to use the UN in the treasury to fill the gap in the collateral value. That is, users repay the Vault's debt by purchasing UN at a discount with TINU. At this time, the collateral belongs to the treasury.
Surplus Auction
There are two purposes for the surplus auction:
To distribute the profits generated in the treasury to UN holders indirectly, reducing the market circulation of UN, achieving the purpose of UN deflation, and anchoring the value of UN to the profits generated by the system, strongly linking UN's value with the system's profits.
To recycle UN into the treasury as a reserve, the treasury needs a large reserve of UN to pay for the next debt auction. The more UN reserves the treasury has, the stronger its ability to solve debts.
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