# Slashing Mechanism

#### 📌 Slashing & Liquidation Logic (Definition + Technical Breakdown)

**Definition:**\
In Centuari’s underwriting framework, when an operator fails to fulfill repayment obligations on an open lending position, the system initiates a **structured liquidation sequence** based on a predefined **liquidity preference tier**. This determines the order in which an operator's restaked assets are liquidated, prioritizing highly liquid, low-risk assets before moving to lower-liquidity, higher-risk assets.

**Example:**\
If an operator’s collateral portfolio includes stETH, rETH, and EIGEN, the system would liquidate **stETH first** due to its superior liquidity and tighter market depth, followed by rETH, and finally EIGEN.

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#### 📌 Technical Mechanics Behind the Process:

* Upon a **default event** (loan maturity exceeded without repayment), the system queries the **Virtual Collateral Pool (VCP)** to retrieve the operator’s locked assets and their associated **Risk-Adjusted Value (RAV)**.
* Each asset in the portfolio is tagged with:
  * **Liquidity Score** (based on on-chain DEX reserve data and oracle-sourced volatility)
  * **Risk Weight** (defined via governance Risk Table)
* The system arranges these assets into a **liquidity preference tier**:
  * Tier 1 → High-liquidity LSTs (e.g., stETH)
  * Tier 2 → Mid-liquidity LSTs (e.g., rETH)
  * Tier 3 → Native governance or exotic tokens (e.g., EIGEN)
* Liquidation proceeds sequentially:
  1. The system attempts to liquidate Tier 1 assets by selling them to market takers via on-chain AMM or CLOB market, using either direct swap or liquidation orderbook.
  2. If debt coverage remains insufficient, Tier 2 assets are liquidated next.
  3. This process continues down the tier list until the defaulted position is fully covered or all collateral is exhausted.
* **Fallback Handling:**\
  If no market exists for the lowest-tier assets or if slippage risk exceeds acceptable limits (as defined in protocol parameters), liquidation halts, and the deficit is flagged to governance for treasury intervention or secondary liquidation rounds.
* **On-chain Recording:**\
  Every liquidation transaction, asset tier selection, and price feed used for valuation is immutably logged to the **Audit Log Contract** for public verification and dispute resolution.

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#### 📌 Why This Matters:

This mechanism:

* **Protects market stability** by prioritizing liquid asset liquidation.
* **Prevents cascading failures** from illiquid collateral dumps.
* **Ensures fairness** among operators by enforcing an impartial liquidation rule set.
* Mirrors proven mechanisms in decentralized restaking security networks while remaining fully sovereign and modular within Centuari’s infrastructure.