Liquidations
If the Loan-to-Value ratio reaches 83%, NFT collateral will be set to be liquidated and user will have ~24 hours to either repay back their loan or add more collateral to bring the LTV ratio below 83%.
What happens if the LTV is still above 83% after 24 hours?
User account is liquidated and underwriters effectively become owners of the liquidated NFT collateral.
Liquidation process:
DeFrag is currently using Gelato to trigger liquidation transactions. Here's an example: https://arbiscan.io/tx/0xcd712daa1b4c2252cd4331b685c5cf8ccf98ca3a55343439abbe3acc3838aa1e
Liquidated NFTs are transferred from the collection's Asset Manager contract to the DeFragDAO multi-sig.
Discord discussion is initiated for underwriters to go over options on what to do with liquidated NFTs.
Snapshot proposal with finalized options discussed on Discord is published for Metamatician holders to vote on one of the options.
Once passed, proposal is manually executed from the DeFragDAO multi-sig.
Future improvements:
Gauging floor price and liquidity depth for NFT assets is extremely hard. As our ecosystem continues to develop, the protocol will be able to adjust to a more efficient and automated liquidation process. But because it's still fairly easy to manipulate floor pricing on Trove, especially for low volume collections, manually executing liquidations (in accordance with snapshot vote results) for these nascent liquidations is necessary for now.
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