Collateral Swap

If a user wants to switch out his collateral with another asset, he has to manually repay his debt, remove his supplied asset and supply another one. The “Collateral swap” feature allows users to complete this move in a single transaction.

Users can swap out using any asset available for collateral on Tectonic. This function is also important from a user’s perspective with regards to risk management. For example, if collateral token A price is declining rapidly, a user can quickly switch it to collateral token B in order to avoid getting liquidated. This also benefits Tectonic as it could help lower the probability of inheriting bad debt.

How Collateral Swap works:

Step 1: User confirms to swap collateral token A with new collateral token B

Step 2: On the backend, Tectonic will burn the user's tToken A to return the underlying token A. No liquidity check conducted at this point

Step 3: Token A will then be swapped for Token B on the integrated DEX (currently VVS Finance)

Step 4: This newly swapped Token B will be used to mint tToken B, and used as the new replacement collateral

Step 5: Liquidity check is conducted