# Liquidation

## How liquidation works?

<figure><img src="/files/XVrO1t65TP7V7rVNJgeR" alt=""><figcaption></figcaption></figure>

Your **Borrow Balance** and **Supply Balance** are tracked using real-time data from decentralized oracles like **Pyth**, which are then used to calculate & monitoring your risk of liquidation.

The system visualizes your position through a graph showing:

1. **Borrow Limit Used**: The amount of your total borrowing capacity that you have used.
2. **Safe Borrow Limit**: The threshold below which your position is safe from liquidation. This is calculated based on the weighted average of the Loan-to-Value (LTV) ratios of your supplied assets.
3. **Liquidation Limit**: The critical level, shown as a line on the graph, beyond which your position is at risk of liquidation.

If your **Borrow Limit Used** surpasses the **Safe Borrow Limit**, borrowing beyond this point is blocked to avoid liquidation risk. If your position exceeds the **Liquidation Limit**, your account is eligible for liquidation.

When liquidation occurs:

* **Third-party liquidators** can repay **20%** of your outstanding loan by selling an equivalent amount of collateral.
* Liquidators are also rewarded with a **3% bonus** on the amount they liquidate, incentivizing them to help maintain protocol health.

## Liquidation Example

Imagine Alice deposits $12,000 worth of USDC as collateral and borrows $8,400 in ETH. Later, the value of ETH increases, pushing the total borrowed value to $9,000. Since her borrow now exceeds the safe collateral threshold, her position becomes eligible for liquidation.

A liquidator steps in and repays 20% of Alice’s ETH debt — that’s **$1,800**. In return, the liquidator receives $1,800 worth of Alice’s USDC collateral **plus a 3% bonus**, totaling **$1,854** in USDC.

After this partial liquidation:

* Alice’s USDC collateral is reduced by **$1,854**, leaving her with **$10,146** remaining.
* Her ETH borrow is reduced by **$1,800**, lowering it to **$7,200**.
* The liquidator pays $1,800 in ETH and receives $1,854 in USDC, earning a **$54 profit**.

Following the liquidation, Alice’s health factor improves, giving her more room before hitting the liquidation threshold again.


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