Stability Vault Model Liquidation

How the USDH Vault maintains system health and rewards Hubble's users.

Stability Vault Liquidations

In order to clear bad debt, USDH from the USDH Vault is burned and collateral is redistributed. In Hubble's original pool, the maximum LTV is 80%. Assuming an 80% LTV, USDH Vault providers essentially receive crypto assets for a ~10% discount.

When liquidations are triggered, the balance of each USDH Vault provider's USDH deposit decreases proportionately to the amount of debt being cleared. At the same time, users receive liquidated assets in direct proportion to their contribution to the USDH Vault.

For example, if a liquidation equals 10% of the total USDH deposited in the USDH Vault, 10% of each USDH Vault provider's USDH deposit is burned.

If a user has deposited 5% of the USDH in the USDH Vault, they will receive 5% of the 89.5% of the assets liquidated (the other 10% is returned to the user, with another 0.5% going to the liquidator).

Here is an example of five USDH Vault positions before liquidation:

                User#1      User#2      User#3      User#4      User#5
USDH Deposit    1500        2500        3500        2000        500       
% of SP         15%         25%         35%         20%         5% 
Total $Value    $1500       $2500       $3500       $2000       $500               

A position is liquidated that has minted 800 USDH with 10 SOL deposited (1 SOL = 100 USD). The user who triggered the liquidation receives .05 SOL. There is now 800 USDH to clear and 8.95 SOL to distribute to USDH Vault providers.

800 USDH is 8% of the USDH Vault, so 8% of each user's deposit will be burned, and then each user is rewarded their fair share of the 8.95 SOL.

Here is the USDH Vault after liquidation:

                User#1      User#2      User#3      User#4      User#5
USDH Deposit    1500        2500        3500        2000        500     
% of SP         15%         25%         35%         20%         5%                 
USDH Burned     120         200         280         160         40             
USDH Balance    1380        2300        3220        1840        460                   
Liq. Reward     1.3425 SOL  2.2375 SOL  3.1325 SOL  1.79 SOL    .4475 SOL       
Reward $Value   $107.4      $179        $250.6      $143.2      $35.8 
Total $Value    $1607.4    $2679        $3750.6     $2143.2     $535.8                                        

Notice that:

• Each user has a lower USDH balance after clearing a liquidation.

• Each user has increased the total dollar value of their position.