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Liquidations protect lenders and keep the protocol solvent. When a position’s health factor falls below 1.0, liquidators can repay part of the debt and receive collateral at a discount.

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When It Triggers

Health Factor = (Collateral Value × Liquidation Threshold) / Total Debt
Liquidatable when Health Factor < 1.0
Common causes: collateral price drops, interest accrual on debt, or parameter changes.

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What Happens

  • A liquidator repays a portion of the borrower’s debt (up to the close factor)
  • The liquidator receives collateral with a small discount (liquidation bonus)
  • The borrower’s debt and collateral both decrease; health factor typically recovers above 1.0
Full liquidations are rare and occur only when a position is far underwater.

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How To Avoid It

  • Keep buffers: target a health factor well above 1.0 (e.g., 1.5+)
  • Monitor assets: set alerts for price moves and HF thresholds
  • Size sensibly: avoid maxing out LTV, especially on volatile assets
If your health factor approaches 1.0, you can add collateral, repay part of the debt, or reduce exposure.

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Terms At A Glance

  • Close factor: maximum share of debt that can be repaid in one liquidation
  • Liquidation threshold: collateral value multiplier used in HF
  • Liquidation bonus: discount applied to collateral given to liquidators
Understanding these mechanics helps you plan buffers, react faster, and avoid forced sales.