Apollon is a collateralized debt platform. Users can lock up collateral (specific ERC20 tokens, selected by the governance) and issue aAssets (aUSD, aAAPL, aTSLA, etc.) to their own address and subsequently transfer those tokens to any other address. The individual collateralized debt positions are called Vaults (or Troves). The aAssets are economically geared towards maintaining their underlying oracle value (peg) due to the following properties: The system is designed to always be over-collateralized – the dollar value of the locked collateral exceeds the dollar value of the issued aAssets. The aUSD is fully redeemable – users can always swap $x worth of aUSD for $x worth of collateral tokens (minus fees) directly with the system. After opening a Vault, users may issue ("borrow") tokens such that the collateralization ratio of their Vault remains above their individual minimum collateral ratio (IMCR). The IMCR is calculated based on the Trove's collateral but will be at least 110%. The tokens are freely exchangeable — anyone with an EVM address can send or receive aAsset tokens, whether they have an open Vault or not. The tokens are burned upon repayment of a Vault’s debt. The Apollon system uses price feeds from the decentralized pyth.network oracle provider. When a Vault falls below its IMCR, it is considered under-collateralized and is vulnerable to liquidation.
Apollon utilizes a two-step liquidation mechanism in the following order of priority: Offset under-collateralized Vaults against the Stability Pool containing aAsset tokens. Redistribute under-collateralized Vaults to other borrowers if the Stability Pool is emptied. Apollon primarily uses the aAsset tokens in its Stability Pool to absorb the under-collateralized debt, i.e., to repay the liquidated borrower's liability. Any user may deposit aAsset tokens into the Stability Pool. This allows them to earn the collateral from the liquidated Trove. When a liquidation occurs, the liquidated debt is canceled with the same amount and type of aAsset from the Pool (which is burned as a result), and the liquidated collateral is proportionally distributed to depositors. Stability Pool depositors can expect to earn net gains from liquidations, as in most cases, the value of the liquidated collateral will be greater than the value of the canceled debt (since a liquidated Trove will likely have an IMCR just slightly below 110%). If the liquidated debt is higher than the amount of available aAssets in the Stability Pool, the system tries to cancel as much debt as possible with the tokens in the Stability Pool and then redistributes the remaining liquidated collateral and debt across all active Troves. Anyone may call the public batchLiquidateTroves() function with a custom list of under-collateralized Trove addresses to attempt to liquidate.
The precise behavior of liquidations depends on the IMCR of the Trove being liquidated and global system conditions: the total collateralization ratio (TCR) of the system, the size of the Stability Pool, etc.
Stability Pool depositors gain collateral tokens over time as liquidated debt is canceled with their deposit. When they withdraw all or part of their deposited aAssets or top up their deposit, the system sends them their accumulated collateral gains. Similarly, a Trove's accumulated gains from liquidations are automatically applied to the Trove when the owner performs any operation — e.g., adding/withdrawing collateral or issuing/repaying aAssets.
Recovery Mode kicks in when the total collateralization ratio (TCR) of the system falls below 130%.
During Recovery Mode, liquidation conditions are relaxed, and the system blocks borrower transactions that would further decrease the TCR. New debt may only be issued by adjusting existing Vaults in a way that improves their ICR or by opening a new Vault with an ICR of ≥130%. In general, if an existing Trove's adjustment reduces its ICR, the transaction is only executed if the resulting TCR is above 130%.
Recovery Mode is structured to incentivize borrowers to behave in ways that promptly raise the TCR back above 130% and to incentivize debt holders to replenish the Stability Pool.
Economically, Recovery Mode is designed to encourage collateral top-ups and debt repayments. It also acts as a self-negating deterrent: the possibility of it occurring actually guides the system away from ever reaching it.