Risk and Liquidation

If the value of an account's outstanding borrowing exceeds its borrowing capacity, a portion of the outstanding borrowing can be repaid in exchange for the user's PDF collateral at the current market price, less a liquidation discount; this encourages the arbitrage ecosystem to quickly intervene to reduce the risk of the borrower and eliminate the risk to the Port of DeFi Network.

In brief:

The percentage eligible for closure, the closure factor, is the fraction of borrowed assets that can be repaid, ranging from 0 to 1, e.g., 25%. The liquidation process can continue until the user has borrowed less than its borrowing capacity. Any Ethereum address that owns the borrowed assets can call the clearing function to exchange its assets to the borrower's PDF collateral. Since both users, assets and prices are included in the Port of DeFi Network, liquidation is frictionless and does not rely on any external system or order book.

Port of DeFi Network-SC system recommends using a simple protocol involving threshold signature, but using a Schnorr signature is easier to be implemented. In this method, Oracle has a collective public key pk and a corresponding private key sk shared between O1, O2. This sharing means that each node Oi has a different private / public key pair (ski, pki). Oi can generate a partial signature that can be verified relative to PKI, σ I = sigsk [AI].