Liquidation
Last updated
Last updated
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:
Borrow Limit Used: The amount of your total borrowing capacity that you have used.
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.
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.
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.
