Phantom Docs
Recovery mechanism
Synthetic asset prices in the secondary market (DEX) are normally anchored to the prices of the original financial assets (prophecy machine prices). However, in extreme circumstances (such as the dramatic volatility in the cryptocurrency market on 2020.3.12), the synthetic asset price on the DEX may become unanchored.
To ensure the Phantom protocol's steady and sustainable operation, when the synthetic asset price in the secondary market (DEX) differs from the original financial asset price (based on the prophecy machine price) by 20% or more, and this situation lasts for more than 24 hours, or when other extreme situations occur and are decided by a community vote, the system recovery mechanism will be triggered. The recovery period is divided into two stages as follows:
Phase 1 (Grace period)
The grace period lasts 7 days, intending to give users enough time to respond and return the synthetic assets and get collateral back. During this period, the synthetic asset insurance function will be temporarily disabled and the user will be unable to open a new CDP.
Phase 2 (Open Liquidation period)
If there are still open CDPs at the end of phase 1 (people who have not returned synthetic assets), phase 2 will be initiated.
If all CDPs have been closed, the recovery phase is complete and the system enters normal operation.
The open liquidation period is 7 days long, during which any user can liquidate the CDPs of other users (regardless of whether the CDP's collateralization rate is higher than the minimum collateralization rate). Users can, for example, use the synthetic assets in their wallets to assist others in returning their collateralized debt positions and earn up to 10% profit. During this time, users can still return the synthetic assets they created and reclaim their collateral (same as in Phase 1).
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