Recovery Mode is triggered when the Total Collateral Ratio or TCR of the system falls below 150%.
Minimum Collateralization Ratio in Normal mode: 110%
Minimum Collateralization Ratio in Recovery mode: 150%
New loans can only be taken out if the borrower sets a CR% of >=150%.
The reason for initiating 'Recovery Mode' is to make sure new borrowers take out loans that do not further reduce the TCR, and instead raise the TCR back above 150%. Furthermore, it's also an incentive for ARTH holders to participate in the Stability Pool and provide more ARTH to the pool.
As a system design, Recovery Mode is best avoided. Thus, the mere possibility of going into recovery mode should be an alarming point for ecosystem participants to make amendments to their position, in order to not go into Recovery Mode.
Have questions about Recovery Mode? Visit our FAQs section here.