Liquidation

A position becomes eligible for liquidation when its Health Factor falls below 1, indicating that the collateral no longer sufficiently backs the outstanding debt. This typically results from a decline in collateral value or an increase in borrowed assets.

The portion of debt that can be liquidated depends on the Health Factor at the time of liquidation:

• 0.95 ≤ Health Factor < 1: Up to 50% of the borrower’s debt may be repaid by a liquidator.

• Health Factor < 0.95: Up to 100% of the borrower’s debt may be repaid.

An liquidation penalty is applied to the liquidated amount. This penalty provides a buffer within the system to help cover the protocol’s costs associated with debt repayment.