Recovery Mode is triggered when the Total Collateral Ratio or TCR of the system drops 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%.
During Recovery Mode, loans with a collateral ratio below 150% can be liquidated.
'Recovery Mode' is initiated to make sure new borrowers take out loans that do not further reduce the TCR, and help 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 possibility of going into recovery mode should be a crucial point for ecosystem participants to make amends to their position, to ensure that they do not go into Recovery Mode.
What is the collateralization ratio in Recovery Mode?
The CR in Recovery Mode is 150%. While the CR in normal mode is 110%.
Do fees change during Recovery Mode?
Yes. While the redemption fee remains the same, the borrowing fee is set to 0% to encourage borrowing in the system.
Measures to remain safe in Recovery Mode?
As a borrower, simply increasing your collateral ratio to >150% will protect you from any liquidations. Thus, you will have to either
Add more collateral or
Repay some debt
Can I be liquidated if my collateral ratio is below 150% in Recovery Mode?
Yes. During recovery mode your position can be liquidated if it falls below 150% CR. Otherwise, during normal circumstances, the CR will remain at 110%. It is advised to both monitor and adjust as needed to avoid liquidation risk.