Deep Dive
Risk & Liquidations
Big Cousin uses partial, penalty-capped liquidations designed to restore health-factor without dumping collateral into thin markets. The insurance module absorbs residual bad debt before any lender takes a loss.
Liquidation trigger
Liquidatable ⇔ HF_i < 1.00
Recall:
HF_i = Σ_j c_i,j · L_j · P_j / D_i
L_j = CF_j + 0.03 (liquidation threshold)
Grace period: HF must remain < 1.00 for 30 seconds
(≈ 300 blocks on BNB Smart Chain).Partial liquidation
A single liquidation may repay at most 50% of the user's debt. This is the "close factor" — its purpose is to give the position a chance to recover before further forced selling.
Debt
60,000 bcUSD
position
→
Close factor
× 0.50
max repay share
→
Repay
30,000 bcUSD
liquidator pays
→
Penalty
× 1.06
6% seize bonus
→
Seize
31,800 USD
collateral out
Liquidator take
1,350 USD (75%)
Insurance module
450 USD (25%)
repay_max = 0.50 · D_i seize = repay_max · ( 1 + π ) / P_collateral π = 0.06 (6% liquidation penalty, capped) Split of the seized collateral: liquidator 0.045 · repay_max (75% of penalty) insurance module 0.015 · repay_max (25% of penalty)
Worked example
- Alice's debt D = 60,000 bcUSD, collateral 10,000 bcSP7 @ $8.00 = $80,000.
- Liquidation threshold L = 74% → HF = 80,000·0.74 / 60,000 = 0.987 → liquidatable.
Before liquidation
HF < 1
Debt60k bcUSD
Collateral$80.0k
Health factor0.987
After liquidation
HF > 1
Debt30k bcUSD
Collateral$48.2k
Health factor1.189
repay_max = 0.50 · 60,000 = 30,000 bcUSD seize_value = 30,000 · 1.06 = 31,800 USD seize_shares = 31,800 / 8.00 = 3,975 bcSP7 After liquidation: D_new = 30,000 bcUSD collat_new = 6,025 bcSP7 · 8.00 = 48,200 USD HF_new = 48,200 · 0.74 / 30,000 = 1.189 ✓ safe
Bad-debt cascade & insurance
If collateral collapses fast enough that liquidators cannot close positions before HF crosses zero, residual debt is absorbed by the insurance module. The module holds:
Absorption waterfall
total capacity ≈ $165.5M
1. Buffer (USDC)$15M
2. Insurance $BCF$68M
3. Emergency mint$42.5M
4. Socialized loss$40M
| Layer | Source | Capacity | Trigger |
|---|---|---|---|
| 1. Buffer | 3% of TVL in USDC | $15M @ $500M TVL | Immediate |
| 2. Insurance $BCF | 80M BCF @ market | $68M @ $0.85 | After buffer |
| 3. Emergency mint | DAO vote, ≤ 5% supply | 50M BCF (capped) | After insurance |
| 4. Socialized loss | Pro-rata haircut on bcUSD | Full remaining debt | Last resort |
Socialization is intentionally the last step
Unlike some peer protocols, bcUSD holders are the final backstop, not the first. The order — buffer, insurance $BCF, DAO mint, socialization — ensures bcUSD depeg risk is bounded and predictable.
Scenario: −25% single-day equity crash
Portfolio index · 40-block window
shock −25%avg HF 1.50liq vol $18Mbad debt $0M
Assumptions: TVL = 500,000,000 Borrow util U = 0.50 → D_out = 162.5M Avg LTV = 62% Instant P shock = −25% Post-shock collateral value = 500M · 0.75 = 375M Avg HF = 375M · 0.65 / 162.5M = 1.50 ✓ At −25% the median position is still healthy. Liquidations concentrate on the top 8% of LTV distribution (users at 70%+ LTV). Estimated liquidation volume: ~$18M over a 30-min window. Insurance draw: 0 (buffer + market liquidations sufficient).
Scenario: −50% cascade
Portfolio index · 40-block window
shock −50%avg HF 1.00liq vol $62Mbad debt $4.8M
Post-shock collateral value = 250M Avg HF = 250M · 0.65 / 162.5M = 1.00 At the median position, HF hits exactly 1. Distribution tails require liquidation of ~$62M debt. Estimated bad debt after partial liquidations & 6% slippage: ≈ $4.8M (≈ 3% of debt outstanding) Absorption path: Insurance buffer ($15M) → covers fully Insurance BCF ($68M) → 0 draw Socialized loss → 0 Conclusion: The protocol survives a −50% single-day equity crash without impairing bcUSD peg or lender principal.