Liquidations

When a Vault becomes undercollateralized, TrustedStake initiates a Dutch auction to liquidate the collateral in exchange for taoUSD.

Dutch Auction Process

  • The auction begins with the Vault’s collateral priced at full value

  • The price gradually decreases over a governance-defined time window

  • Bidders can purchase the collateral at a discount using taoUSD

  • Arbitrage opportunities arise because Vault debt < collateral value

Fallback Mechanism

If no bids are received during the auction, it is canceled and the protocol executes the liquidation internally to preserve solvency.

This mechanism ensures efficient risk management while preserving the value of the system’s overcollateralized design.

PreviousIssuance Fee

Last updated