Liquidations

Lotus protocol modularization liquidation policies.

The core Lotus contract is responsible for health checks, interest accrual, collateral approvals, position updates, and bad debt.

While the pricing of the liquidation and execution of the liquidation are left to a protocol approved Liquidation Module.

function liquidate(
    MarketParams memory marketParams,  // The market parameters.
    uint256 trancheIndex,              // The tranche index of the position to liquidate.
    address borrower,                  // The borrower to liquidate.
    bytes calldata irmData,            // IRM-specific data.
    bytes calldata lmData              // Liquidation module data containing encoded BaseLiquidationParams.
) external returns (uint256, uint256);

The liquidate() function

1. Accrues interest for only the trancheIndex

2. Retrieves the price from the oracle, and verifies the loan is unhealthy require(!_isHealthy(...))

3. Has the Liquidation Module calculate the amount of seizedAssets and repaidShares liquidationModule.calculateLiquidation().

4. Updates the borrower's Position.

5. Calculates badDebt. If badDebt > 0, then accrueInterest() for the entire market, and cascade the badDebt to tranches [trancheIndex, numTranches) based on trancheSupplyUtilization.

6. Approves collateralToken to the Liquidation Module

7. Has the Liquidation Module execute the liquidation, typically transferring collateralToken to the liquidator immediately liquidationModule.executeLiquidation().

Liquidation Modules are expected to satisfy the following interface

    function initializeMarket(
        Id id,                            // The id of the market.
        bytes calldata liquidationConfig  // ABI-encoded params expected by the liquidation module implementation.
    ) external;

    function calculateLiquidation(
        Id id,                    // The id of the market.
        uint256 trancheIndex,     // The index of the tranche.
        Tranche memory tranche,   // The tranche data.
        uint256 collateralPrice,  // The price of the collateral in oracle price scale.
        bytes calldata lmData     // Custom data containing seizedAssets, repaidShares, and callbackData.
    ) external view returns (
        uint256 seizedAssets,     // The amount of collateral to be seized.
        uint256 repaidShares,     // The shares of debt to be repaid.
        uint256 repaidAssets      // The amount of debt to be repaid.
    );

    function executeLiquidation(
        MarketParams calldata marketParams,  // The market parameters.
        uint256 trancheIndex,                // The index of the tranche.
        uint256 seizedAssets,                // The amount of collateral to transfer to liquidator.
        uint256 repaidAssets,                // The amount of debt to transfer from liquidator.
        address liquidator,                  // The address of the liquidator.
        bytes calldata callbackData          // Optional callback data for the liquidator.
    ) external;
}

Liquidation Modules can be enabled on the protocol by the Lotus admin.

function enableLiquidationModule(address liquidationModule) external onlyOwner;

Afterwards markets can be created with this Liquidation Module. Parameters for the liquidation module are passed in during market creation.

function createMarket(
    MarketParams memory newMarketParams,  // The MarketParams for the new market.
    bytes calldata irmParams,             // The parameters for the IRM.
    bytes calldata liquidationParams      // The parameters for the liquidation module.
) external;