3 System Overview
This system overview describes the initially received version ( ) of the contracts as defined in the
Assessment Overview.
Liquidations 2.0 for multi collateral DAI has been developed to mitigate uncovered shortcomings in the
previous liquidation system. The most notable change from the previous version is the move from English
to Dutch style auctions. The resulting single block composability allows anyone to participate in the
liquidation without capital constraints by leveraging flash-loans. Contrary to the old system, partial
liquidations no longer exists except under special circumstances. Keepers, responsible to initiate the
liquidation of undercollateralized vaults have no first mover advantage anymore in the auction, hence a
new incentive scheme has been introduced.
3.1 Contracts
The liquidation 2.0 system consists of following deployed contracts: One shared Dog responsible for the
vault liquidations and multiple Clip contracts handling the auctions, one for each collateral. Further
contracts implementing the AbacusLike interface determine the price evolution during an ongoing
auction.
3.1.1 Vault Liquidation - Dog.sol
Replaces the Cat contract of the old liquidation system.
In the context of the Maker protocol, a liquidation is the seizure of collateral from an insufficiently
collateralized vault. During this process, the vault's debt is transferred to the protocol. An auction is
started immediately to sell the collateral for DAI in an attempt to cancel out the debt now assigned to the
protocol.
In Dog.bark(), the liquidation function takes all debt (different than before) and initiates the auction by
calling kick() on the respective auction contract of this collateral type.
Several conditions must be met for a liquidation:
• The Dog contract must be live.
• The vault to be liquidated must be undercollateralized.
• The current liquidation amount of this collateral type must be below a certain limit.
• The global total liquidation amount of all collaterals must be below a certain limit.
This prevents liquidation of too much collateral at once which could lead to price fluctuations of DAI.
Additionally, allows to account for collaterals with limited liquidity.
• The auction contract for this collateral must accept new auctions.
The Dog contract has the following operational modes:
• live == 1 - Status after deployment, system is active
• live == 0 - System has been frozen after execution of cage(). No new liquidations can be
initiated.
3.1.1.1 Special cases
Partial Liquidations: As the total amount of debt in active auctions cannot exceed either the global
Hole or the per collateral ilk.hole a vault may only be liquidated partially.
Dust: Neither can vaults be left in a dusty state after a partial liquidation nor can auctions for partial
liquidations be initiated below the dust amount.
Maker Foundation - Liquidations 2.0 - ChainSecurity
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