DA-05 · LESSON 10

Liquidation cycle

KEY DEFINITIONS

Terms used in this lesson

Preimage: The original secret data whose hash equals a previously committed value.
Guardian: A Ducat policy-checking signer that can authorize or reject defined protocol transactions.
Vault: A set of Bitcoin outputs and spending rules that holds collateral and represents the current loan state.
Oracle: A system that reports outside information, such as a market price, for use by a protocol.
Collateral: An asset pledged against a debt; it can be used to cover the debt if agreed conditions are breached.
Witness: Signatures, scripts, or other data supplied to satisfy a Bitcoin output’s spending condition.
Validator: Software or a participant that independently checks state transitions under a system's rules. The exact role depends on the protocol being discussed.

Detection, preimage release, candidate selection, Guardian validation, repo or trim construction, broadcast, confirmation, and resulting reserve flows form the liquidation lifecycle.

45 min Difficulty 5/5 Not started

VISUAL MODEL

See the whole mechanism before going step by step

Use the diagrams to orient yourself. Then the guided explanation below teaches every part in depth.

4 explanatory views

CONCEPT-SPECIFIC MAP · ducat vaultA Ducat action moves one Bitcoin-anchored vault state to a successorSelect any state to inspect its exact role.

RELATIONSHIP MAPInputs, rule, and outputs

01
PREDECESSORCurrent vault outpoint
The current Bitcoin output anchors collateral and identifies the state being spent.
02
REQUESTLiquidation cycle
The Liquidation cycle workflow proposes one exact action and successor state.
03
POLICYProfile, oracle, signatures
Applicable policy, price evidence, authorization, and transaction shape are checked.
04
BITCOIN SPENDScript-valid transaction
Bitcoin miners and nodes can include only a transaction that satisfies Bitcoin rules.
05
SUCCESSORNew outpoint and state
Ducat validators reconstruct debt, collateral, token, and account changes from the confirmed transaction.

Rule shown: Bitcoin checks the spend; Ducat components independently reconstruct and validate the additional protocol state.

STAGE 1 OF 5PREDECESSOR: Current vault outpoint

The current Bitcoin output anchors collateral and identifies the state being spent.

Governing relationship: Bitcoin checks the spend; Ducat components independently reconstruct and validate the additional protocol state. Complete path: 1. PREDECESSOR, Current vault outpoint. The current Bitcoin output anchors collateral and identifies the state being spent. 2. REQUEST, Liquidation cycle. The Liquidation cycle workflow proposes one exact action and successor state. 3. POLICY, Profile, oracle, signatures. Applicable policy, price evidence, authorization, and transaction shape are checked. 4. BITCOIN SPEND, Script-valid transaction. Bitcoin miners and nodes can include only a transaction that satisfies Bitcoin rules. 5. SUCCESSOR, New outpoint and state. Ducat validators reconstruct debt, collateral, token, and account changes from the confirmed transaction.

1. State transitionWhat exists, what changes, and what results

BEFORE

A vault falls through a committed collateral threshold.

MECHANISM

The oracle cycle authenticates a price, evaluates the relevant threshold ladder, and releases the matching breach material.

AFTER

Liquidation is a state-transition pipeline with oracle, construction, signing, fee, mempool, and confirmation failure points.

Text equivalent: Starting from A vault falls through a committed collateral threshold. The mechanism begins when The oracle cycle authenticates a price, evaluates the relevant threshold ladder, and releases the matching breach material. The resulting lesson is Liquidation is a state-transition pipeline with oracle, construction, signing, fee, mempool, and confirmation failure points.

2. Mechanism pathSelect a stage to inspect its job

STAGE 1 OF 5

Detect the breach

The oracle cycle authenticates a price, evaluates the relevant threshold ladder, and releases the matching breach material.

Complete path: 1. Detect the breach: The oracle cycle authenticates a price, evaluates the relevant threshold ladder, and releases the matching breach material. 2. Identify candidates: Protocol observers reconstruct vault state and determine which vaults are eligible under the active collateral rules and oracle snapshot. 3. Construct repo or trim: The client chooses the applicable full or partial liquidation path and builds the required Bitcoin transaction shape with current fees and commitments. 4. Validate and sign: Guardians check the action, state, witness commitments, transaction structure, and policy before contributing authorization. 5. Broadcast, confirm, and reconstruct: The transaction enters the mempool, confirms, and validators update the live vault and reserve state from the confirmed chain.

3. Rule and failure boundaryWhat accepts the result and where it can stop

ACCEPTED PATH

The oracle gates release, the Guardian gates authorization, Bitcoin gates the transaction and witness, and validators gate Ducat successor recognition from the active chain.

CHANGED CONDITION

No breach stops release; stale state or policy failure stops signing; an invalid witness stops Bitcoin; fee delay postpones confirmation; a reorg requires rollback and replay.

Important distinction: The vault is liquidated the instant the oracle publishes a lower price. The price enables a path. A valid transaction still has to be constructed, authorized, broadcast, mined, and recognized in chain state.

Text equivalent: The accepted path is enforced by The oracle gates release, the Guardian gates authorization, Bitcoin gates the transaction and witness, and validators gate Ducat successor recognition from the active chain. If the required condition changes, No breach stops release; stale state or policy failure stops signing; an invalid witness stops Bitcoin; fee delay postpones confirmation; a reorg requires rollback and replay.

Loading lesson visuals...

Learn the idea

A liquidation cycle is the full sequence from detecting an unsafe vault to confirming the transaction that changes its state. A price breach alone does not complete a liquidation.

GUIDED EXPLANATION1/5 ideas inspected

Detect the breach

The oracle cycle authenticates a price, evaluates the relevant threshold ladder, and releases the matching breach material.

The worked example follows the explanation

Inspect every idea above to open it.

Important distinction“The vault is liquidated the instant the oracle publishes a lower price.”

The price enables a path. A valid transaction still has to be constructed, authorized, broadcast, mined, and recognized in chain state.

FINISH LEARNING FIRST

The questions unlock after every required learning activity

Inspect every guided idea, open the worked example, rebuild its mechanism, and complete the deterministic lesson tool. Your progress is saved automatically.