Liquidations

Liquidations are a critical mechanism that keeps AlphaFi Lend solvent. When a position becomes undercollateralized, external liquidators can repay part of the debt and receive collateral at a discount

When Liquidation Occurs?

A position becomes eligible for liquidation when the borrow value exceeds the liquidation threshold:

• Your position is safe — As long as debt stays below this threshold
• Liquidation Threshold — Typically 85-90% of collateral value
• Liquidation eligible — When debt crosses the liquidation threshold

On the health bar, this is represented by the "Liq" marker. If your utilization reaches or exceeds this point, liquidators can act on your position.

Example: Liquidation Scenario

You supply $100 of SUI (90% liquidation threshold) and borrow $80:

• Liquidation triggers if debt reaches $90
• SUI drops 15%, collateral now worth $85
• New liquidation threshold = $76.50 (90% of $85)
• Your $80 debt exceeds $76.50 — position is liquidatable

How Liquidation Works

When a position is liquidatable:

1. Liquidator identifies the position — External actors monitor the protocol for unhealthy positions
2. Liquidator repays debt — They pay off a portion of your borrowed assets
3. Liquidator receives collateral — They claim equivalent collateral plus a bonus
4. Position health improves — Your debt decreases, improving your health factor

Close Factor

AlphaFi uses a 20% close factor, meaning liquidators can only repay up to 20% of your debt in a single liquidation.

This partial liquidation approach:

• Gives you a chance to recover your position
• Prevents complete loss of collateral in one transaction
• Allows multiple liquidators to participate if needed

Example: Partial Liquidation

Your position has $100 debt and becomes liquidatable:

• Liquidator can repay up to $20 (20% close factor)
• They receive $20 worth of your collateral plus the liquidation bonus
• Your remaining debt is $80
• If still undercollateralized, another liquidation can occur

Liquidation Bonus

Liquidators receive a bonus as incentive to maintain protocol health. This bonus is split between:

• The liquidator — Compensation for gas costs and risk
• The protocol — Contributes to protocol revenue

The bonus comes from your collateral, meaning you lose slightly more collateral than the debt repaid.

Avoiding Liquidation

Protect your position by:

Action	Effect
Monitor your health bar	Stay aware of your position status
Keep utilization low	Borrow well below your Safe Borrow Limit
Add collateral	Increases your thresholds
Repay debt	Directly improves health factor
Diversify collateral	Reduces impact of single-asset price drops

Setting a personal safety marging

A common practice is to never borrow more than 50-60% of your Safe Borrow Limit. This provides buffer for:

• Normal market volatility
• Interest accrual
• Time to react if prices move

If your health bar shows utilization above 70-80%, consider taking action.

Extreme Volatility Protection

AlphaFi Lend includes special liquidation settings that activate during periods of extreme market volatility. These mechanisms provide additional protection for the protocol during rapid price movements.

Detailed documentation for volatility protection settings coming soon.