Liquidations 2.0: Technical Summary

I’m having a bit of trouble following. Could you give an example of a hypothetical liquidation?

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I’m confused, liquidation penalty is a % so isn’t the linear component of the reward easily made safe? And you’re opening yourself up for farming with the fixed component, for not much gain: if a vault is not worth it it’s not worth it, no? (And gas costs are just the usual costs of doing stuff on the chain).

The linear component is generally safe if kept well below chop, yes.

The constant component might be useful e.g. if for some reason the protocol ends up with a lot of dusty Vaults and wants to incentivize Keepers to clean them up–otherwise these accrue fees that look like surplus but aren’t, and if not dealt with could threaten the backing of DAI. It could also be useful to respond to increasing gas prices–gas cost to liquidate is independent of Vault size, so it would be inefficient for the protocol to increase the percent-wise component in response–this would overpay for liquidations of large Vaults (and might underpay for ones that are too small). So long as dust and chop are considered in setting the constant component, farming can be avoided here, too.

Either component can just be set to zero if not needed. Governance might very well decide not to use one or the other, but currently the thinking is that there are enough hypothetical use cases it’s worth having them both, since upgrades of smart contracts are disruptive and risky.

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Let’s say %-wise reward is 2%, constant reward is 5 DAI.

Liquidate a Vault with 1,000 DAI in debt, receive (0.02 * 1,000) + 5 = 25 DAI.

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Further to the discussion on the dust parameter in liquidation 1.2, there is an implicit assumption among the community that liquidation 2.0 mechanism will allow Maker to support lower dust parameter as the tip mechanism will incentives users to call bite (in 2.0 bark).

In 1.2 bite currently cost $50 in gas (for 100 gwei gas price), and bark does not seem to be much cheaper.
Looking at the code, I see that the chop parameter is fixed for all debt sizes.
Hence, in order for the tip not to exceed the liquidation penalty, a minimum debt size of roughly $500-1500 is needed (depends on the target gas price).
This is not very different than the current state in 1.2.

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Thank you very much @yaronvel for noting this point. Much more reason for us to look for other mechanism like the one discussed in [Informal Poll] Creating a Bite-Rebate Contract for Keepers Acting on Small Vaults

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Yup–looking forward to @Kurt_Barry @BrianMcMakerDAO @cmooney providing the community their take on Yaron’s post. Thank you in advance Gentleman. Y’all are some real MVP’s to the community. And I don’t mean as in “minimum viable product”–more like Michael Jordan :stuck_out_tongue_winking_eye:

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I didn’t find any timeline regarding liquidatons 2.0. What’s the current status and when can we expect it to be finished (winter/spring/summer)? Is it still in the blueprint/design phase? Any code written so far? Sorry for my ignorance.

This is a real possibility. Ultimately the primary goal of liquidations 2.0 is to improve overall access to market liquidity for Dai and remove the effective requirement that keepers must run an expensive external process and archive node. We’re still going to be constrained by the economic realities of the gas market.

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I opened an issue suggesting to add the tip to the tab. Imo it could solve the issue. But idk if it is too late in terms of timelines.
Either way, if liquidation 2.0 will not solve it, then it should be pointed out clearly in the current discussions regarding the dust level.
I am under the impression many believe it will be fixed in 2.0.

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Hey all, quick question - is liquidations 2.0 running on any testnets yet?

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