Liquidation Process

To avoid de-pegging and extreme price fluctuations, the Hex One protocol uses a collateral debt auction system that allows depositors to bid on stakes that can be transformed into Hex tokens.

TLDR: if the collateral ($HEX) price drops sharply there may be outstanding debt. In that scenario, the depositor must acquire additional $HEX1 tokens to repay the original loan.

Liquidation process

Liquidations take two different forms: price-based and time-based.

Price-base liquidations

1. If the collateral ratio (health ratio) drops below 200%, the position becomes available for liquidations.

2. Anyone can pay the borrowed HEX1 and claim the position. This means the liquidator becomes the effective owner of the tshares and can claim the underlying HEX tokens once the stake matures.

3. Liquidations follow a Dutch auction system where the total repaid HEX1 follows the drop in the price of HEX. This means that liquidators may pay less than 100% of the position and claim it.

4. To mint HEX at the end of the staking period, the total HEX1 borrowed amount needs to be repaid.

Time-base liquidations

1. Once the stake matures the borrower needs to repay the HEX1 loan and mint the underlying HEX tokens.

2. Hex One protocol checks the maturity date and grace period (bonus 7 days after endStake).

3. After the grace period is due, any participant can repay borrowed $HEX1 and claim the stake.

4. The liquidation winner gets to automatically mint the HEX stake.