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Slashing & liquidation

TeleBTC is only as trustworthy as the collateral backing it. Two mechanisms enforce that: slashing (punishing misbehavior) and liquidation (keeping collateral healthy). Both pay out from a Locker's collateral and burn the corresponding TeleBTC to keep backing intact.

Slashing​

Thief locker — unauthorized BTC movement​

A Locker should only move its BTC to fulfil an unwrap request. If it moves BTC for any other reason (theft, hack):

  • Anyone can submit a transaction inclusion proof to the TeleSwap contract.
  • The contract checks the movement against recorded unwrap requests.
  • If it matches none, theft is proven and collateral is slashed at a multiplier of the moved amount.
  • Users can buy the slashed collateral at a discount using TeleBTC, which is then burned.

Lazy locker — missed unwrap​

If a Locker doesn't process an assigned unwrap in time, anyone can call the contract to slash it, and the affected user is compensated from the collateral.

Liquidation​

Liquidation keeps a Locker's collateral comfortably above the value of the BTC it holds, so there's never an incentive to run off with the assets.

Health factor

HealthFactor = LockedCollateralValue / (BitcoinAssetsValue × LiquidationRatio)
  • When the health factor falls below 100, liquidation opens.
  • Liquidators buy discounted collateral with TeleBTC; the TeleBTC is burned and the Locker receives the native-BTC equivalent.
  • Liquidation can only continue until the position returns to a safe band (NewHealthFactor < UpperHealthFactor), preventing over-seizure.

A Locker can avoid liquidation by adding collateral before the threshold is reached.

The exact slashing multipliers, discount rates, and collateral/liquidation ratios are set by protocol governance and enforced on-chain.