MechanicsDutch Auctions

Liquidation Auctions

Liquidations in RevvFi are handled by RevvFiLiquidator, running a declining-price auction that bidders can still compete on — a hybrid of a Dutch auction (falling reference price) and an English auction (competing bids), rather than a pure first-bidder-wins model.

Auction Trigger

Any user can trigger liquidation once a position’s collateral ratio falls below the market’s liquidationThreshold, which creates an auction via RevvFiLiquidator.createAuction().

Auction Lifecycle

1. Initialization

When createAuction() is called:

  • Collateral is transferred into the liquidator contract for the auction.
  • Starting price is set to 100% of the outstanding debt.
  • Reserve price is fixed at 80% of the outstanding debt — the floor the current price will never drop below.
  • The auction runs for auctionDuration (3 days by default).

2. Price Decay

The current price decays in discrete steps rather than continuously:

steps = (block.timestamp - startTime) / dutchAuctionStepDuration;      // default: 1 hour
decrement = debtAmount * dutchAuctionPriceDecrementBps * steps / 10000; // default: 5% of debt per step
currentPrice = max(debtAmount - decrement, reservePrice);

So by default the price steps down 5% of the original debt every hour until it reaches the 80% reserve floor (roughly 4 hours in), then holds there for the remainder of the 3-day window.

3. Bidding

Anyone can call placeBid(auctionId, bidAmount):

  • The first bid on an auction must meet or exceed the current (declining) price.
  • Every subsequent bid must exceed the previous highest bid by at least minBidIncrementBps (1% by default) — it does not need to chase the declining reference price once a bid exists.
  • Each new highest bid immediately refunds the previous bidder their tokens.
  • A bid placed within auctionExtensionWindow (15 minutes by default) of the current endTime pushes endTime forward by that same window, preventing last-second sniping.

4. Settlement

Anyone can call settleAuction(auctionId) once block.timestamp > endTime:

  • If there’s a highest bidder: their bid is transferred to the market (for lender distribution), and the collateral is transferred to them.
  • If there were no bids at all: the liquidator automatically retries with a fresh auction rather than leaving collateral stuck.
  • Any gap between the debt owed and the winning bid is recorded as bad debt via Market.settleLiquidation(), which also feeds into the borrower’s reputation score.

Loss Distribution by Seniority

When a liquidation doesn’t fully cover the debt, losses are absorbed junior positions first:

  • Junior positions (seniority == 1) take losses before senior positions, in proportion to their share of the shortfall.
  • Senior positions (seniority == 0) are only affected once junior positions have absorbed everything they can.

This is the seniority tier’s actual function in the protocol — it governs loss order during a shortfall, not the fill order during a normal borrow().

Worked Example

Position: 10,000 USDC debt, undercollateralized

  1. Auction created: starting price 10,000 USDC, reserve price 8,000 USDC, 3-day window.
  2. After 2 hours (2 steps @ 5%/step = 10% decayed): current price = 9,000 USDC.
  3. Bidder A bids 9,000 USDC — meets the current price, becomes highest bidder.
  4. 10 minutes before endTime, Bidder B bids 9,200 USDC (> 9,000 × 1.01) — exceeds A’s bid by more than the minimum increment, becomes new highest bidder, A is refunded, and the auction’s endTime is extended by 15 minutes.
  5. No further bids arrive. settleAuction() is called after the (extended) endTime: the market receives 9,200 USDC (recording an 800 USDC shortfall as bad debt), and Bidder B receives the collateral.
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