When a borrower’s position becomes undercollateralized, fully recovering the debt via normal liquidations may be impossible. In that rare case, the protocol “writes off” the position and socializes the loss across all remaining borrowers of the instance in order to prevent a bank run among Coin holders.Write‑offs are guarded by strict conditions and are typically invoked automatically at the end of a liquidation. They may also be executed independent of liquidations via the writeOff() function.
Bad debt identification and handling are governed by the writeOff(borrower, to) flow:
Accrue and sync: Interest is accrued and the borrower’s internal accounting is synchronized.
Price gate: The oracle must report a valid, sufficiently fresh price; otherwise socialization is disabled.
Write off threshold: If debt > 100 × collateralValue at the oracle price, the collateral value is considered negligible and the position qualifies for write‑off.
Three actions then occur atomically:
Delete borrower debt: The borrower’s entire outstanding debt is wiped.
Redistribute the wiped debt: The same amount of debt is added back to the system by increasing total free and total paid debt in proportion to their current sizes.
Transfer residual collateral: All of the borrower’s remaining collateral is sent to to (the liquidator/caller), and the borrower’s collateral balance is set to zero.
This function is called from liquidations via a safe external call (try/catch) so that liquidation success is not jeopardized if the write‑off preconditions are not met.
Remaining borrowers (free and paid): Their total pool debt increases while their individual shares remain unchanged, so their computed debts rise proportionally. This fairly spreads the loss across active borrowers.
Liquidator/caller: Receives the borrower’s remaining collateral as compensation for calling the writeOff() function.
Coin holders/stakers: Re-collateralizes their holdings using collateral of other borrowers and avoids bank runs.
