Liquidation

Introduction

A liquidation is a process that occurs when a borrower's health factor goes below 1 due to their collateral value not properly covering their loan/debt value. This might happen when the collateral decreases in value or the borrowed debt increases in value against each other.

In a liquidation, up to 50% of a borrower's debt is repaid and that value + liquidation fee is taken from the collateral available, so after a liquidation that amount liquidated from your debt is repaid.

When is the asset collateral liquidated?

A liquidation happens when a borrower's health factor falls below one when their collateral worth does not adequately cover their loan/debt value. If the value of the collateral drops and the value of the borrowed debt rises against each other, this will happen. The health factor displays the collateral vs loan valuation ratio.

In a liquidation, up to 50% of a borrower's debt is repaid and that value + liquidation fee is taken from the collateral available, so after a liquidation that amount liquidated from your debt is repaid.

How can I avoid the liquidation?

In order not to be liquidated, you should raise the health factor by depositing more your collateral asset or repaying part of your loan. By default, repayments increase your health factor more than deposits. It's signficant to keep an eye on the healthy factor and keep it high in order to prevent a liquidation.

Can I participate in the liquidations ecosystem?

Anyone can participate in the liquidations ecosystem. However it's very competitive because normally liquidators develop their own solutions and bots to be the first ones liquidating loans to get the liquidation bonus.