Buying in auction

If a loan has not been repaid before its end date, the NFT used as collateral becomes purchasable in auction. This liquidation is a dutch auction, meaning a sale where the price starts high and decreases linearly with time, and the first to buy the NFT at its current price gets to keep it. The design goal of the auction is to sell the NFT at the fair market price to distribute the proceeds to the lenders to make up for the principal + interests that haven't been repaid. The auction is governed by two parameters, set at borrow time:

  • the duration, which is the time it takes for the price to reach 0 (after which it stays at 0 and anyone can claim the NFT for free).

  • and the priceFactor. Kairos will estimate the value of the NFT from the mean of the offers used regarding the share of the NFT value that has been borrowed from them.

    amount_lent * (1 / shareLent) = estimatedPrice
    

    It will multiply this estimated price by the price factor to obtain the starting price of the auction.

Kairos guarantees that the starting price of an auction cannot be lower than the loan to value of any offer used to take the loan that originated it. The initial parameters of auctions are set to a 3 days duration and a 3x initial price factor. Note that the the claimable value after an auction by lenders and the borrower results in a net inferior price. Notably, if a lender represents 100% of the liquidity supplied for a loan and that 100% of the collateral value has been used, buying that NFT in auction then claiming its share of the sale results in a net 0 cost (not counting the amount lent) for that lender. Kairos will support this kind of chaining through external contracts in the future.