What is a Forced Liquidation event?
If a Loan becomes insolvent, any 3rd Party on the platform can repay it and take the collateral. This "Forced Liquidation" is crucial for the Borrower/Lender ecosystem, with liquidators earning a premium on the collateral they seize.
When is my Loan considered insolvent?
A Loan is insolvent when the borrowed token exceeds the maximum borrowing threshold, defined as
Collateral Factor * $C. When the Loan Health approaches 0, it risks Forced Liquidation.How do I prevent my Loan from being Liquidated?
The collateral factor acts as a buffer, ensuring borrowers remain liquid after a liquidation. A 100% collateral factor could lead to total liquidation if the borrower drops below the threshold.
Liquidators currently receive a 10% bonus on collateral.
Example:
1. Deposit $1000 XPR and borrow $400 XPR
-> you have $1400 in assets and $400 in liability = $1000 net
2. If your loan health falls below 0%
3. A liquidator repays $40 XPR
-> liquidator receives $44 XPR of your deposits
-> you now have $1356 in assets and $360 in liability = $996 net
-> your loan health is >0%
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