Alchemint, a crypto-collateralized stablecoin issuer in the Neo ecosystem, has released a warning that users who have issued SAR contracts to mint SDUSD stablecoins may face potential liquidation. The announcement followed a sharp decline of more than 30% across the entire cryptocurrency market that resulted in the liquidation of a third of all SDUSD SAR contracts and puts more than half at a critical risk of liquidation.
Smart asset reserves (SAR) contracts are used to back the SDUSD stablecoin by mortgaging digital assets. Currently, Alchemint only accepts NEO for SAR collateral. To mint SDUSD tokens, the user creates a SAR and sends a corresponding amount of NEO determined by the mortgage rate. At the time of press, the mortgage rate is approximately 178%.
The stability of SDUSD is maintained by the collateral backing the token, which is impacted by price fluctuations of NEO. The lower the price per token of NEO, the more that needs to be mortgaged in the SAR. When the amount of collateral backing an SDUSD token falls below 150%, the user must either fund the SAR with more NEO, or face liquidation and potentially incur additional fees.
To avoid liquidation, Alchemint recommends its users either reduce their SDUSD collateral amount, increase their mortgage rate, or close any open SAR until the market shows signs of stabilization.
The full announcement can be found at the link below: