In the case of a shortfall event, the Safety Module uses up to 30% of the assets staked to cover the deficit. Stakers should assume that in case of Protocol failure up to 30% of staked amount could be used to cover liquidations and repayments.
What is Shortfall event?
The main role of the Safety Module is to protect the protocol against unexpected loss of funds stemming from:
Smart contract risk: On the smart contract layer, there is a risk of a bug, a design flaw, or a potential attack.
Liquidation risk: The risk of an asset failing that is being used as collateral on AADA; the risk of liquidators failing to capture liquidation opportunities in a timely manner; or the risk of the principal asset to be repaid having low market liquidity.
Oracle failure risk: Risk of the Oracle system failing to properly update prices in the event of a severe market downturn and network congestion; risk of the Oracle system failing to properly submit prices, resulting in improper liquidations.
In the event of a shortfall event, the SM will use up to 30% of the capital that has been placed as a pledge. Recovery Issuance occurs if the seized SM assets don't cover the total debt. The drawn SM amount and the issued AADA go toward covering the deficit.