Liquidation Documentation

Overview

The liquidation process within the Clynto protocol is designed to protect lenders while maintaining fairness for borrowers. The process is governed by specific rules that dictate when and how a lender can initiate liquidation of the collateral provided by the borrower. This documentation provides a detailed explanation of the liquidation mechanisms, including the conditions under which liquidation can occur, the notice periods required, and the steps involved in the liquidation process.

Liquidation Scenarios

1. Early Liquidation Notice

1. Eligibility to Issue a Liquidation Notice:
   • A liquidation notice can only be issued if the loan's liquidation point has not yet been reached and the loan duration has not exceeded the agreed term.
   • Additionally, the lender must have held the investment for a minimum period as defined by the governance of the Clynto protocol.
2. Governance-Defined Minimum Liquidation Period:
   • The governance of the Clynto protocol defines the minimum number of days that must pass before a lender can issue a liquidation notice for any new funding.
   • For example, if governance sets a minimum period of 10 days, a lender can only issue a liquidation notice after holding the investment for at least 10 days.
3. Liquidation Notice Period:
   • The governance also determines the number of days a liquidation notice must be active before liquidation can occur.
   • The minimum notice period is 7 days, during which the lender ceases to accrue interest.
   • For instance, if a lender issues a 30-day liquidation notice, no interest will accrue during that 30-day period.

2. Instant Liquidation

1. Conditions for Instant Liquidation:
   • A lender can initiate an instant liquidation if one of the following conditions is met: i. The loan duration has passed, and the borrower has not repaid the loan. This option can be optionally selected by the borrower during the loan setup. ii. The loan's liquidation point, as defined by governance, has been reached, indicating that the collateral value has dropped to a critical level.

3. Liquidation Process

1. Partial Collateral Liquidation:
   • In the event of a liquidation, any lender involved in the loan can choose to liquidate a portion of the collateral. This allows for a flexible response to the borrower's situation while providing some protection to the lender.
2. Asset Swap and Transfer:
   • Upon initiating a liquidation, the collateral is swapped for the loaned assets (such as stablecoins) and transferred to the lender. This process ensures that the lender recovers the value of their investment while minimizing losses.

Summary

The Clynto liquidation process is designed to balance the interests of both lenders and borrowers. By setting clear rules for when and how liquidation can occur, and by allowing for partial liquidation and governance-defined parameters, the protocol ensures that lenders are protected while borrowers are treated fairly. The structured approach to liquidation helps maintain the stability and trustworthiness of the Clynto ecosystem.