Bounded Liquidations

When HF ≤ 1.0, the system initiates a bounded liquidation — a controlled restoration event triggered when an Operator’s total backing assets (including delegated YODL, unutilized vault assets, and taker tokens) fall below the Health Factor threshold.

Unlike conventional liquidations that forcibly unwind positions and risk contagion, bounded liquidations are deterministic and scope-limited, converting only the shortfall needed to fully restore the Curator’s principal while preserving protocol solvency.

Bounded Liquidation Process

1. Detection

Automated liquidation bots trigger when an Operator’s Health Factor ≤ 1.0, indicating that the combined value of taker tokens, unutilized vault assets, and delegated $YODL has dropped below the vault’s liability.

2. Conversion

Operator-held taker tokens are swapped into the vault’s base asset via whitelisted AMMs to begin principal restoration.

3. Slashing

After detection and conversion, delegated $YODL is slashed and swapped via whitelisted AMMs into the vault’s base asset to cover the remaining deficit.

4. Restoration Framework Activation

If a residual shortfall persists after $YODL conversion, the Restoration Framework automatically tops up the remaining balance from the protocol-managed reserve to fully restore the Curator’s principal.

Post-Liquidation Impact

Delegator Impact

Delegated $YODL is reduced by the USD value of the remaining deficit (including slippage, volatility, and DEX fees).

Operator Impact

Reputation score decreases; repeated events reduce delegation priority and lower the available execution credit ceiling.

Curator Impact

None - vault principal is fully restored.

Protocol Impact

Temporary sell pressure on $YODL due to $YODL-to-asset conversions performed during bounded restoration.