Reserve Auctions
If enough AUSD is bid in the Collateral Auction to fully cover the Vault liabilities plus the Liquidation Penalty, the auction becomes a Reverse Collateral Auction, with the goal of selling as little collateral as possible. Any collateral that is left over is returned to the Vault's original owner.
In case the auction fails to generate enough AUSD to cover the Vault liabilities plus the liquidation penalty, the deficit is transformed into Protocol debt if the Collateral Auction does not raise enough AUSD to pay the Vault's outstanding commitment. The AUSD in the ADADAO Buffer pays the protocol debt.
The Protocol initiates an Emergency Auction if there is insufficient AUSD in the Buffer. A detailed protocol for Emergency Auction is yet to be designed. ADAO tokens will be used for bringing stability to the system in this case.
The AUSD revenues from the Collateral Auction go into the ADADAO Buffer, which acts as a buffer against future uncovered Collateral.
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