Liquidation Auction

The auction code covers the execution of the collateral liquidation auction itself. See https://github.com/Agoric/agoric-sdk/tree/master/packages/inter-protocol/src/auction

The system employs a descending clock auction which starts at or above the current oracle price (as opposed to the locked price which triggers liquidation), and steps down in price filling bids as it goes. Its operation is based on a number of tunable parameters. Below is an example scenario demonstrating how the auction functions:

Assume the market price for collateral at the start of the auction is $10.

The auction’s first price step is set at $10.50, based on a 105% setting for its starting rate parameter

• During this step, the auction fills any bids at or above $10.50 at its step price of $10.50, ordered by time the bid was received. “Bids by discount” are translated to priced bids based on the starting price of $10.00 and considered in this step

• This step lasts for 180 seconds, based on the auction’s ClockStep parameter setting

The auction’s second step is set at a price of $10.00, based on its DiscountStep parameter setting of 5% (i.e., 5% of the starting price is $0.50)

• During this step, the auction fills any bids at or above $10.00 at its step price of $10.00, ordered by time the bid was received. “Bids by discount” are translated to priced bids based on the starting price of $10.00 and considered in this step

• This step lasts for 180 seconds, based on the auction’s ClockStep parameter setting

The auction proceeds by stepping down in the above manner. If it hasn’t reached its IST target amount or sold all its collateral, it continues stepping down until it completes its step at $6.50, based on its LowestRate parameter setting of 65%.

Most auctions will complete without reaching their final step. Bids that enter during the auction will be considered at any step where they are at or above the step price, however bids are filled in order of arrival.

The parameters governing the function of the auction may be set at launch. As written, the contracts grant the Economic Committee a temporary capacity to handle these parameters as the protocol stabilizes. Auction operational tuning is not part of the Economic Committee’s charter, and so an important topic of discussion may be how the community expects this capability to be used.