Automatic conversion mechanism

Overview of automatic conversion

• User over-borrowing trigger: A user's outstanding borrowing exceeds their borrowing limit.
• Lending pool over-utilization trigger: The utilization rate of a particular asset lending pool reaches an excessively high level.

Automatic conversion triggered by user over-borrowing

• When a user's outstanding borrowing reaches 90% of their borrowing limit, the system will issue a warning notification encouraging the user to voluntarily repay the outstanding borrowings.
• When a user's outstanding borrowing exceeds 100% of their borrowing limit, the automatic conversion mechanism will be triggered. The process is as follows:
   
  1. The system will cancel the user's spot and spot margin sell orders for the relevant borrowed asset to release frozen balances.
  2. The system will automatically convert the user's assets with positive balances into the over-borrowed asset for repayment purposes, starting with the most liquid assets. During this process, sell orders for the assets with positive balances may be canceled, and redemptions of Flexible Savings product holdings associated with the assets with positive balances may be required.
  3. The automatic conversion process will cease once the outstanding borrowing amount falls to 85% or below the user's borrowing limit.

Automatic conversion triggered by lending pool over-utilization

• All new borrowing for the over-utilized asset will be suspended, including borrowing for order placement and borrowing for transfers. The system will cancel all spot and spot margin sell orders placed by users with outstanding borrowings in the affected asset in order to release available balances.
• Users will be ranked and grouped according to their liability amounts for the affected asset. Processing will start with users holding the largest liabilities and proceed tier by tier. Within each liability tier, users will be processed in descending order of liability amount.
   
  1. The repayment target for each processing cycle is calculated as follows: Repayment amount = Outstanding liability − Lower limit of the applicable liability tier. After each repayment, the user's liability tier will be reduced by one level.
  2. The system will automatically convert the user's assets with positive balances into the over-utilized asset for repayment purposes, starting with the most liquid assets. During this process, sell orders for the assets with positive balances may be canceled, and redemptions of Flexible Savings product holdings associated with the assets with positive balances may be required.
  3. Once a user has completed the required repayment amount, they exit the current processing cycle, and the system proceeds to the next user.
      
• During the above process, if the utilization rate of the affected lending pool falls to the safety threshold of Z%, the platform-wide automatic conversion process for that asset will stop immediately. If all users within a particular liability tier have completed their repayments and the utilization rate still remains above the safety threshold, the system will proceed to the next liability tier until the lending pool utilization rate falls to the designated safety threshold.

1. Example liability tiers (ETH):