Multi-Collateral System

PHT utilizes an over-collateralization model inspired by DAI, a proven and stable mechanism that has demonstrated resilience, particularly during market turbulence.

Certain features of the multi-collateral system, such as the Liquidation Mechanism outlined on this page, has not yet been activated and will only be implemented upon the official launch of the Full Version 1 System, as specified in the Technical Roadmap.

Over-Collateralization

Due to the over-collateralization design, when minting PHT, users are required to provide collateral that exceeds the value necessary to cover potential losses in the event of default. They must also maintain a healthy collateral-to-debt ratio above the liquidation threshold to avoid liquidation. This mechanism ensures the system's stability and helps minimize risk.

Mixed Collateral Composition

Initially, the accepted collaterals will be focused on stablecoins (USDC, USDT) to ensure minimal volatility exposure. In the next phase, APACX plans to expand the asset pool to include a broader range of assets, such as major crypto assets (e.g. Bitcoin, Ethereum), fiat currencies (e.g. Philippine Peso) and RWAs (e.g. bonds like U.S. Treasury Bills and Money Market Funds).

Collateral Risk Parameters

Each collateral type used in the APACX Protocol has specific risk parameters, which are fine-tuned based on multiple factors. These parameters help determine how each collateral behaves under different market conditions and its capacity to maintain the stability of PHT.

Factors

• Historical Volatility: The fluctuations in the price of the asset type of collateral over time.

• Market Liquidity: How easily the collateral can be bought or sold in the market.

• Price Correlation with PHP: The relationship between the collateral’s price and the value of PHP.

• Black Swan Stress Testing: Simulated extreme events that test the collateral's resilience under rare and unpredictable market conditions.

Liquidation Workflow

When a vault’s collateral-to-debt ratio falls below the minimum threshold, the liquidation process is triggered to cover the outstanding obligations and maintain system stability.

1. Liquidation Trigger

   • Condition: A vault’s collateral-to-debt ratio falls below the Liquidation Ratio, signaling undercollateralization.

   • Action: The Keeper calls to identify the undercollateralized position and initiate liquidation.

2. Collateral Auction Initiation

   • Mechanism: The APACX Protocol’s Collateral Auction system is activated to liquidate the collateral and cover the vault's obligations, including the Liquidation Penalty (e.g., 13%).

3. Auction Phases

   • Phase 1 - Increasing PHT Bids: Bidders place increasing PHT bids for the set amount of collateral, ensuring enough PHT is raised to cover both the vault’s debt and the liquidation penalty.

   • Phase 2 - Reverse Auction: Once the required PHT amount is reached, the auction transitions to a Reverse Collateral Auction. Bidders now compete by offering decreasing collateral amounts for a fixed PHT price.

4. Collateral Seizure & Settlement

   • Winning Bidders: The collateral is awarded to the highest bidder, with proceeds used to cover the vault’s outstanding debt and penalties. Any surplus proceeds are used as follows:

     • If the collateral auction exceeds the obligations, the excess funds are added to the APACX Protocol’s reserves.

5. Debt Handling (Shortfall Coverage)

   • If the auction does not raise sufficient PHT: The remaining deficit is covered by the protocol’s reserves. If the reserves are insufficient, a Debt Auction is triggered, where new governance tokens will be minted and sold to cover the shortfall.

   • It is important to note that while the governance token is not yet live, the stability fee is not yet turned on. This means that a deficit scenario can never happen in the first place.

   • Collateral positions are also only opened by the team and known liquidity providers to avoid imbalances in the system until the governance token and stability mechanism are fully activated.

6. Surplus Management

   • Excess Proceeds: If PHT proceeds from the auction exceed the debt obligations, these funds are added to the reserves.

   • Surplus Auction: Excess reserves lead to Surplus Auctions, where bidders compete for fixed PHT amounts by offering governance tokens. The governance tokens obtained in this process are burned, reducing supply and helping stabilize the system.

   • It is important to note that while the governance token is not yet live, the stability fee is not yet turned on. This means that a surplus scenario can never happen in the first place.

   • Collateral positions are also only opened by the team and known liquidity providers to avoid imbalances in the system.