In borrowing, when a borrowers’ health factor goes below 1 due to their collateral value not properly covering their loan/debt value, a liquidation process might happen. In other words, borrowers’ collateral value decreases or borrowed value increases 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.

How to avoid being liquidated?

In order to avoid collateral liquidation, you need to maintain your health factor at a safe level. To increase health factor, you can pay back a part of your loans or deposit more assets for your borrowing amount. Among two available options, repaying the loan would increase your health factor more. We mention you should keep your health factor over 2.

Last updated