Auction Price Decay Curves

Auction price decay curves define the mathematical function used to reduce the price of collateral during a Dutch auction. These curves can be linear, exponential, or piecewise, depending on the protocol's design goals.

A steeper decay curve might be used to force a quick liquidation, while a flatter curve allows for more careful price discovery. The choice of curve directly impacts slippage, as it dictates how quickly the asset is offered to the market.

Designers must model these curves to match the typical volatility of the collateral asset to ensure the liquidation is both fast enough to protect solvency and slow enough to prevent unnecessary price impact.