Liquidations

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. This collateral vs loan value ratio is shown in the health factor. 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 much is the liquidation penalty?

The liquidation penalty (or bonus for liquidators) depends on the asset used as collateral. You can find every assets' liquidation fee in the risk parameters section.

How can I avoid getting liquidated?

To avoid liquidation you can raise your health factor through actions like depositing more collateral assets or repaying part of your loan. By default, repayments increase your health factor more than deposits. Also it's important to monitor your health factor and keep it high to avoid a liquidation. Keeping your health factor over 2, for example, gives you more of a margin to avoid a liquidation. Tools that can help you with this: - You can track and receive notifications about your HF using HAL - You can auto liquidate your loan using Defi Saver

Can I participate in the liquidations ecosystem?

Yes, liquidations are open to anyone, but there is a lot of competition. Normally liquidators develop their own solutions and bots to be the first ones liquidating loans to get the liquidation bonus. You can find more details in our developers liquidation section