Financial Safety

Leverage Pool Limitations

For liquidity providers, rest assured that the liquidity pool will never be entirely borrowed out. Each asset pool at Macaron has a specific utilization threshold. Once the utilization of assets reaches this threshold, leverage users will no longer be able to borrow from the pool. This mechanism encourages borrowers to repay their loans, thereby reducing pool utilization and maintaining a healthy balance within the protocol.

Pool utilization threshold for different assets:

USDC: 90%

wBTC: 50%

wETH: 50%

Dynamic Annual Percentage Rate

The APR for leverage users borrowing assets from the liquidity pool is dynamic. As the total utilization of the pool increases, the APR rises. Conversely, when utilization is relatively low, the APR decreases to incentivize leverage actions. This dynamic adjustment helps maintain the health and balance of the liquidity pool.

Emergency Liquidation Bot

Macaron protocol operates an Emergency Liquidation Bot service designed to automatically liquidate Credit Accounts that are not promptly addressed, ensuring the protocol's liability and stability.

In general, liquidators are the first to intervene, managing accounts and earning liquidation rewards. Any accounts that remain are handled by the liquidation bots. If this dual-insurance mechanism encounters situations beyond its capacity, such as significant market events, the Macaron Protocol Safeguard will activate to address the issue.

Protocol Safeguard

A portion of the leveraging APR is allocated to a safeguard fund designed to activate in case of inadequately liquidated accounts.

Ideally, when the Health Factor of a Credit Account reaches1, the liquidation process is triggered. Given that the liquidation threshold for all assets is around 94%, there should always be approximately 6% of collateral available to cover gas costs and any remaining interest owed to liquidity providers, the rest of which will be the reward claimable to the liquidator. However, unforeseen circumstances such as significant price fluctuations or issues with the price feed oracle could prevent timely liquidation. While the likelihood is low, it is not zero.

In such scenarios, there may not be enough funds to cover gas costs or to pay liquidity providers the interest they are due. The safeguard fund will then step in to cover these shortfalls, ensuring that neither the protocol nor the providers face a net loss, even under unexpected conditions.