Liquidations, Oracle and Redemptions

What are liquidations?

In Quill, liquidations are a critical mechanism that ensures the stability and security of the lending system. Here’s a detailed overview:

• Purpose of Liquidations: Liquidations occur when the value of a borrower’s collateral falls below a certain threshold (the collateralization ratio) necessary to secure their loan. If the collateral value drops too low, it poses a risk to the protocol and lenders, prompting the need for liquidation to recover funds.

• Liquidation Process: When a user's collateral becomes insufficient to cover their borrowed amount, the protocol triggers a liquidation event. In this event, the collateral backing the loan can be sold off to repay the debt. This process is automated, ensuring that the protocol remains solvent and that lenders' interests are protected​.

• User Notifications: Quill typically provides real-time notifications to users regarding the status of their collateral to help them manage their positions proactively and avoid liquidation. This transparency is crucial for borrowers to maintain their loans without risking their collateral.

Liquidations in the Quill Protocol serve to maintain the health of the lending ecosystem by ensuring that all loans are adequately secured, thus promoting overall stability.

How to avoid being liquidated?

To avoid being liquidated in the Quill protocol, borrowers can implement several strategies to maintain the necessary collateralization ratio and protect their positions. Here are some effective ways to minimize the risk of liquidation:

• Maintain a Healthy Collateralization Ratio: Ensure that the value of your collateral significantly exceeds the amount borrowed. Monitor market fluctuations and adjust your collateral as needed to create a buffer against price drops.

• Regular Monitoring of Collateral Value: Keep track of the market prices of your collateral assets. Regularly check the current value to anticipate potential risks, utilizing Quill's dashboard tools for collateral health monitoring.

• Deposit Additional Collateral: If the value of your collateral approaches the liquidation threshold, deposit additional collateral to improve your collateralization ratio. This proactive step helps reinforce your position and prevent liquidation.

• Limit Borrowing Amounts: Borrow only what is necessary and avoid maxing out your borrowing capacity. Limiting the borrowed amount relative to your collateral reduces the likelihood of falling below the required collateralization ratio.

• Stay Informed About Market Conditions: Be aware of broader market trends or news that could affect the value of your collateral. Sudden shifts can impact collateral values quickly, so staying informed enables timely decision-making.

• Repay borrowed $USDQ: Reduce the debt in your position, improving your collateral-to-debt ratio and lowering the risk of liquidation during market downturns.

By employing these strategies, users can better manage their collateral and reduce the risk of liquidation within Quill.

What oracle does Quill uses to determine ETH (and other collaterals) price?

For collateral asset price feeds, Quill Finance uses the industry standard decentralized oracles Chainlink as its primary oracle which provides highly secure and reliable, tamper-resistant data feeds. The included asset price feeds provided by Chainlink are:

• weETH-USD

• wstETH-USD

• wETH-USD

• SCR-USD

Furthermore, Quill Finance will use Chainlink and Pyth as its oracle solutions for USDQ-USD price feeds, which will become available in the near future.

What are redemptions?

In the Quill protocol, a redemption is the process of exchanging $USDQ for ETH at face value, meaning that 1 $USDQ is treated as equivalent to $1. This allows users to redeem their $USDQ for ETH (or any other collateral) at any time without restrictions, receiving the dollar value in ETH in return.

However, please note that a redemption fee applies to the redeemed amount. For instance, if the current redemption fee is 1% and the price of ETH is $500, redeeming 100 $USDQ would yield 0.198 ETH (calculated as 0.2 ETH minus a redemption fee of 0.002 ETH).

Additionally, the amount redeemed is considered when calculating the base rate, which could influence the redemption fee, particularly for larger amounts.

If I make a redemption, am I paying my debt back?

No, redemptions in Quill operate as a distinct mechanism from repaying debt. To pay back your loans, you simply need to adjust your debt and collateral without involving the redemption process. This design simplifies the repayment process and allows for more flexibility in managing positions within the protocol.