Vault Liquidations

It is possible for an entire vault to be liquidated. This may occur when the ratio of the value of all the collateral it contains relative to the value of all of the debt it’s responsible for drops below the Liquidation C-Ratio for its corresponding collateral type. This is a scenario where sequentially performing liquidations on each of the liquidity positions would result in the last remaining position still having a collateralization ratio below the Liquidation C-Ratio.

In this case, anyone can wind down this vault by repaying some or all of its debt with dUSD and receiving a proportional share of the collateral held in the vault. Because this can occur the moment the vault's C-Ratio drops below the Liquidation C-Ratio (while still above 100%), liquidators are incentivized to restore the health of the system by receiving collateral worth more than the debt they are repaying. The liquidated collateral is seized from all of the liquidity positions in the vault pro-rata.

To perform a vault liquidation, anyone can call the liquidateVault function. The poolId and collateralType parameters specify the vault to liquidate. The liquidateAsAccountId parameter specifies an account that should receive the collateral. (It can then be delegated to a pool or retrieved from the system using the withdraw function.) The maxUsd parameter specifies the maximum amount of dUSD that will be transferred from msg.sender to perform the liquidation. If maxUsd is less than the total debt carried by the vault, a partial liquidation will occur.

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