System Status and Price Volatility
System Status
Gravita Protocol displays on its front-end a System Status. The value displayed is based on the current system LTV.
Normal is displayed when the LTV of a specific collateral type is healthy.
Caution is displayed when the LTV of a specific collateral type is approaching the Maximum System LTV.
Recovery mode is displayed when the LTV of a specific collateral type is greater than the Maximum System LTV.
On Gravita Protocol, despite the existence of a common Stability Pool, each collateral type has an independent System Status. As a consequence, a specific collateral type can be in Recovery Mode while others aren't.
| Collateral Type | Maximum System LTV |
|---|---|
WETH | ≈ 71% |
rETH | ≈ 71% |
wstETH | ≈ 71% |
bLUSD | Liquidations and redemptions against bLUSD are not enabled on Gravita Protocol |
In order to better give users an understanding of how Gravita Protocol works, the following examples will be only be made using WETH as a collateral type.
What is Recovery mode?
Recovery Mode kicks in when the total LTV of one specific collateral type in Gravita Protocol goes above the maximum LTV.
During Recovery Mode, Vessels with an LTV of 71.4% or more can be liquidated.
Even though further in this page we are taking as an example only WETH vessel, it is true for all collateral types (except bLUSD) that during Recovery Mode Vessels with an LTV of 71.4% or more can be liquidated.
Moreover, the system blocks borrower transactions that would further increase the LTV. New GRAI may only be issued by opening a new Vessel with an LTV below 71.4%.
The goal of Recovery Mode is to incentivize borrowers to behave in ways that promptly reduce the LTV back below the Maximum System LTV and to incentivize GRAI holders to replenish the Stability Pool.
Economically, Recovery Mode is designed to encourage collateral top-ups and debt repayments, and also itself acts as a self-negating deterrent: the possibility of it occurring actually guides the system away from ever reaching it. Recovery Mode is not a desirable state for the system.
How can I make my Vessel safe in Recovery Mode?
By lowering your LTV to 71.4% or less. You can do this by adding collateral or repaying part of your debt in GRAI.
How do liquidations work?
In Normal Mode Liquidations can only happen if your LTV goes above the Maximum LTV described on this page. In recovery mode, the following parameters affect the behaviour of Gravita Protocol during recovery mode:
ILTV = Individual Loan-to-Value Ratio
MLTV = Maximum Loan-to-Value Ratio
TLTV = current Total Loan-to-Value Ratio
SP GRAI = Amount of GRAI in the Stability Pool
Vessel Debt = The amount of GRAI taken as a loan from a Vessel
Condition | Liquidation Behaviour |
ILTV >=100% | Redistribute all debt and collateral (minus compensation) to active Vessels of the same collateral type. |
MLTV < ILTV < 100% & SP GRAI > Vessel debt | GRAI in the Stability Pool equal to the Vessel's debt is offset with the Vessel's debt. The Vessel's collateral (minus the liquidator compensation) is shared between depositors. |
MLTV < ILTV < 100% & SP GRAI < Vessel debt | The total Stability Pool GRAI is offset with an equal amount of debt from the Vessel. A fraction of the Vessel's collateral (equal to the ratio of its offset debt to its entire debt) is shared between Stability Providers. The remaining debt and collateral (minus the liquidator compensation) is redistributed to active Vessels to reduce their TVL. |
TLTV < ILTV <= MLTV & SP GRAI >= Vessel debt | The Stability Pool GRAI is offset with an equal amount of debt from the Vessel. A fraction of collateral with dollar value equal to |
TLTV < ILTV <= MLTV & SP GRAI < Vessel debt | Do nothing. |
ILTV <= TLTV | Do nothing. |
A good rule of thumb is to be under the TLTV and the MLTV in recovery mode. it is advisable to also monitor the TLTV to avoid liquidation. For Vessels opened with bLUSD as collateral, Gravita Protocol did not implement a Liquidation or Redemption mechanism. This means that Stability Providers will not capture any bLUSD, since it cannot be liquidated or redeemed against. It is important to note that, because of it's design, actions taken by users interacting with the Smart Contracts developed by Gravita Protocol will always value 1 GRAI as if it is worth $ 1 USD.
This does not mean that the value of GRAI will always be equal to $ 1 USD; users need to be aware that the price of GRAI can and will very likely move below or above those ranges in Decentralized or Centralized Exchanges. It is important that users understand those mechanisms very well before interacting with Gravita Protocol.
How is GRAI price determined?
Because of it's design and the previously described recovery mode, it is likely that GRAI will move around it's peg in decentralized markets in a range. This does not mean that the token cannot move below or above those ranges, and users should always be careful and fully aware of their actions when using Gravita Protocol.
GRAI can be defined as a volatility dampened token. This happens through a combination of mechanisms defined below:
Hard peg
The ability to redeem GRAI for collateral inside Gravita's Vessels and to mint GRAI at a 90% LTV against WETH creates a price floor and price ceiling respectively through arbitrage opportunities. We call these "hard peg mechanisms" since they are based on direct processes. This offers to the user a more forgiving margin of error to avoid redemption. More importantly, it allows GRAI to not regularly be over peg, which would otherwise make over time the implementation of GRAI in other protocols less desirable.
Soft peg
GRAI also benefits from less direct mechanisms — called "soft peg mechanisms". As the price of GRAI fluctuates below and above 1 USD, opportunities arise for both borrowers and depositors.
Another of these mechanisms is parity as a Schelling point. Because of it's design, actions taken by users interacting with the Smart Contracts developed by Gravita Protocol will always value 1 GRAI as if it is worth $ 1 USD. Parity between the two is an implied (but not guaranteed) equilibrium state of the protocol.
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