In decentralized finance (DeFi) platforms, the clearing mechanism is an important part of ensuring system stability. Especially for the bitSmiley platform that adopts an over-collateralized design, the liquidation mechanism is a key factor to ensure the smooth operation of the system. bitSmiley adopts a unique set of liquidation rules to reduce the risk of bad debts and maintain the overall security of the platform.
1. bitSmiley liquidation trigger conditions
bitSmiley's liquidation mechanism is mainly initiated when BTC prices fluctuate significantly, especially in the case of extreme market fluctuations. When the value of the user's mortgage assets is insufficient to support the lent stablecoin (bitUSD), the system will trigger the liquidation process. This mechanism not only protects the stability of the platform, but also effectively avoids user losses.
When the BTC price drops to a certain critical point, bitSmiley's smart contract will automatically determine whether the user's mortgage rate is lower than the minimum standard required by the platform. If it is lower than this standard, the system will automatically liquidate the user's mortgage assets to ensure that the bitUSD lent by the user can still maintain its value.
2. Liquidator mechanism: Promote system stability
bitSmiley's liquidation mechanism relies on a group of liquidators (Liquidators) who can obtain collateral below the market price through bidding to encourage them to actively participate in the liquidation process. The liquidator mechanism not only effectively maintains the stability of the platform, but also provides additional income opportunities for users holding SMILE tokens.
Users holding SMILE tokens can apply to become liquidators and enjoy priority liquidation rights. In the case of severe market fluctuations, liquidators can obtain certain profits from the liquidation process. This mechanism attracts more users to participate in bitSmiley's stability maintenance, while enhancing the holding value of SMILE tokens.
3. Liquidation discount and margin model
bitSmiley adopts a unique discount mechanism during the liquidation process, that is, the liquidator can purchase mortgage assets at a discount below the market price. This mechanism not only attracts more liquidators to participate in the liquidation process, but also can quickly clear bad debts when the market fluctuates, reducing systemic risks.
At the same time, bitSmiley also adopts a margin model to ensure that malicious operations by liquidators or excessive liquidation are avoided during the liquidation process. Under the margin mode, the liquidator must submit a certain number of SMILE tokens as margin in advance to prove the credibility of its liquidation behavior. If the liquidator operates maliciously or fails to complete the liquidation tasks as required, his or her deposit will be deducted. Through this mechanism, bitSmiley effectively reduces system risks and ensures fairness and transparency in the liquidation process.
4. Liquidation preference: bringing more benefits to holders
bitSmiley’s liquidation priority mechanism provides SMILE token holders with an additional profit opportunity. SMILE holders exceeding a certain number can enter the liquidator whitelist and obtain priority liquidation rights. This priority not only allows holders to first participate in the discounted benefits obtained from liquidation, but also further enhances the attractiveness of SMILE tokens.
in conclusion
As the core guarantee of the bitSmiley platform, the liquidation mechanism not only provides strong support for the stability of the platform, but also creates more opportunities for SMILE token holders to participate and profit. Through trigger conditions, liquidator mechanism, margin model and liquidation priority, the bitSmiley platform realizes the risk management of decentralized finance and provides users with a safe, transparent and stable DeFi platform.