Clearpool's smart contracts have been developed to incorporate a number of safety measures which protect both borrowers and lenders during black swan events.
In the event that the utilization rate reaches 95%, the pool will enter the High-Util (high-utilization) state. Borrowers will not be able to remove liquidity when a pool is in High-Util. During High-Util interest will continue to accrue and increase the borrowers utilization rate.
Lenders may still provide and withdraw liquidity during High-Util, however, withdrawals for lenders will also be halted should the utilization rate reach 99%.
In the event that the utilization rate reaches 99%, the pool will enter the Warning state. When a pool is in Warning neither the borrower nor the lenders can withdraw liquidity. As soon as a pool enters Warning the borrower is given a 120 hour (five day) Grace Period to return the utilization rate back below 95%.
Should the Grace Period end without the utilization rate returning below 95%, the borrower and pool will enter the Default state.
Until utilization = 99% or <95%
*Parameters can be modified via governance in the future.
When a pool is in Default, an auction will be triggered allowing participants to bid for the pool's cpTokens (the total debt of the pool).
Bidders can be individuals or institutions but must be whitelisted. Whitelisting is achieved through providing KYC information and by declaring the UBO of the bid. The pool borrower is not permitted to participate in the auction.
The minimum auction bid must be higher than the insurance amount (see Insurance section for more information).
The auction will run for 120 hours (Five days), a period which can be modified via governance in the future.
Following the auction, a voting process will ensue, providing all cpToken holders with the opportunity to accept or reject the winning bid.
If the majority vote to reject the bid, then each cpToken holder will be able to redeem their cpTokens for their proportionate share of the pools insurance account, and maintain their rights to legally pursue the defaulted borrower individually.
If the majority vote to accept the bid, then each cpToken holder will be able to redeem their cpTokens for their proportionate share of the winning bid amount, but will relinquish their rights to legally pursue the defaulted borrower to the winning bidder.
If the bid is accepted, the winning bidder will receive an NFT containing the legal rights to the pool's debt, and the exclusive legal right to pursue the defaulted borrower.