Auctions and Buffers

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Collateral Auctions 
Liquidated vaults will have their collateral auctioned to liquidators. Liquidators repay the vault’s debt by bidding dUSD (Or any Ardana Stablecoin) to purchase the vault’s collateral at a discount. The protocol will charge a small fee on liquidations and it will distribute some of it to exDANA holders.
The discount rate in Ardana’s collateral auctions will be algorithmically determined, and it will float between a floor of 5% and a cap of 20%. The algorithm will adjust the discount rate according to the demand level for the liquidated collateral. Put simply, this means that as more collateral is sold the algorithm will lower the price discount and vice versa.
Reserve Auctions
Assets held in the reserve auctions will be sold in reserve auctions. During reserve auctions, the assets in the reserve will be sold at a discount in exchange for dUSD or other Ardana stablecoins. The received dUSD will either be burned or be used to repay the debt of undercollateralized vaults when there is a need for more liquidity in collateral auctions. Both of these functions will serve in protecting the price stability of the stablecoin, with the former having its use in reducing the supply of Ardana stablecoins when they are trading at a relative discount, and the latter having its use in ensuring that the protocol remains solvent by providing another layer of capital to liquidate undercollateralized CDPs.
Stability Buffer
A portion of the stablecoin revenue of the protocol will be sent to a reserve called the “Stability Buffer”. This reserve of Ardana stablecoins will serve as a liquid backstop that will maintain the price stability of Ardana’s stablecoins. Whenever there will be undercollateralized vaults without a sufficient amount of liquidations to cover their debt, the stability buffer will use its dUSD reserve to participate in collateral auctions.
The stability buffer will have a cap on the value of stablecoins it can hold, once that cap is reached, all funds will be transferred to the Reserve Buffer.
Reserve Buffer
The reserve buffer will use the excess stability buffer stablecoins to buy high-quality liquid assets (such as ADA/BTC) in the open market. Once inside the reserve buffer, these assets will be used to further aid in maintaining the price stability of the stablecoin by providing a collateral buffer to the stablecoin. The assets in the reserve buffer will be sold in reserve auctions.
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