Saying Goodbye to Recovery Mode

Hubble Protocol is on a mission to provide the best user experience when borrowing USDH. As part of fulfilling this goal, a significant modification to our borrowing platform will include the removal of Recovery Mode.

Saying Goodbye to Recovery Mode
Saying Goodbye to Recovery Mode.

*NB: Recovery Mode will be disabled April 18th.

Hubble Protocol is on a mission to provide the best user experience when borrowing USDH. As part of fulfilling this goal, a significant modification to our borrowing platform will include the removal of Recovery Mode.

Removing Recovery Mode will lead to several changes for Hubble, and here are some differences users will notice before and after Recovery Mode.  

Before: Recovery Mode Enabled

  • Maximum 90.9% LTV for borrowing USDH
  • Other users’ borrowing affects System LTV
  • System LTV higher than 66.6% kicks in Recovery Mode
  • Users with an LTV over 66.6% partially liquidated
  • Recovery Mode shuts off when System LTV returns below 66.6%

After: Recovery Mode Disabled

  • Maximum 75% LTV for borrowing USDH against current collateral types
  • Other users cannot affect another user's liquidation threshold
  • Users are guaranteed one liquidation threshold at all times
  • Current users retain 90.9% LTV until modifying their positions

Recovery Mode was never triggered over the two months it was in place, and it will soon be dismantled in favor of an adjusted loan-to-value ratio for all tokens.  This ensures the protocol has more than 10% breathing room for USDH to remain fully collateralized by crypto assets at all times.  

Why Did Hubble Implement a Recovery Mode?

Hubble launched by offering a maximum 90.9% LTV for borrowing USDH. At the same time, we also guaranteed USDH would be backed 150% by collateral as a safeguard against black swan events, making sure USDH would always be solvent.

This meant that the System LTV would need to remain above 66.6% to maintain that promise. To clarify, the System LTV is the ratio of the total collateral deposited on Hubble and the total USDH borrowed.

If lots of users or a few whales began borrowing closer to the 90.9% limit and then the market crashed, then they could push the System LTV above 66.6% through their actions.

This is when Recovery mode would trigger, and any users with an LTV above 66.6% could experience a partial liquidation for the sake of reducing the System LTV.

In short, Recovery Mode would keep Hubble and USDH solvent when too many users overleveraged their borrowing and the market took a tumble. It’s an idea we originally borrowed from Liquity, but it’s one we are happy to dismantle as we grow.

Why Are We Getting Rid of Recovery Mode?

Recovery Mode was a top concern that users raised when they approached us on Telegram and Discord. A lot of people didn’t like the idea of getting liquidated even if they were borrowing below a 90.9% LTV.

It was confusing for many to see Hubble advertising a 90.9% maximum LTV when, in fact, there could be an occasion where borrowing more than 66.6% LTV put a loan at risk of liquidation.  

The possibility of facing a liquidation (although just a partial liquidation) based on the borrowing habits of the community as a whole made it difficult to manage one’s own position on Hubble.

We need to make sure that borrowing USDH is a great user experience and that they can trust Hubble with their funds. Providing users with maximum predictability when borrowing USDH is part of that mission.

Thankfully, most users have been borrowing at safe levels, and Recovery Mode never kicked into gear. Still, the possibility of triggering Recovery Mode had many people worried when the system LTV hovered around 60%.

Screen capture of Hubble's System LTV, which is 20% below triggering Recovery Mode. 

How Hubble Will Operate Without Recovery Mode

Without the safety net of Recovery Mode, we'll need to adjust the maximum amount that users can borrow. Instead of a 90.9% maximum LTV ratio for currently accepted collateral, a 75% LTV will be put in place.

Current users will be grandfathered into the 90.9% LTV until they make any changes to their position. These users will see a message about these changes when they interact with Hubble again, and they must agree to these changes before they can borrow more or change their position.

In other words, every user’s liquidation threshold will remain at a 90.9% LTV until they borrow more or withdraw collateral.

Hubble is ready to push these changes as soon as we are confident we have done so as securely as possible. We also want to make sure we properly inform the community about what's going to happen, so, like Recovery Mode itself, it doesn't come as a surprise.

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