Liquidations

Liquidation Eligibility

A position becomes liquidatable when:

health_factor < 1.0

This means the risk-adjusted collateral value no longer covers the debt.

For the borrower-facing safety display, Liquidium may show position safety as Health %, while technical examples often use decimal Health Factor. See the Health Factor guide for the Health Factor to Health % conversion table and calculation.

Close Factor

The close factor determines how much of a position can be liquidated in a single transaction:

Partial liquidation gives borrowers a chance to recover their position before complete closure.

Liquidation Bonus

Liquidators receive a bonus as incentive to maintain protocol health:

Live liquidation bonuses can change. Check the live Markets page for current asset-specific liquidation bonuses, liquidation thresholds, and Max LTV values.

The bonus is paid in collateral tokens, meaning liquidators receive more collateral than the debt they repay.

Liquidation Math

Collateral Calculation

max_repay_amount = position.debt × close_factor

repay_value_usd = repay_amount × debt_asset_price
bonus_value_usd = repay_value_usd × liquidation_bonus
seized_value_usd = repay_value_usd + bonus_value_usd

seized_collateral = seized_value_usd / collateral_asset_price

Protocol Fee

The protocol takes a small fee from liquidations:

protocol_fee = seized_collateral × protocol_liquidation_fee (e.g., 2%)
liquidator_receives = seized_collateral - protocol_fee

Example Liquidation

Underwater Position:

Borrower:
  Collateral: 1 BTC @ $50,000 (LT = 74%)
  Debt: $38,000 USDC

Health Factor: (50000 × 0.74) / 38000 = 0.974 (liquidatable)

Liquidator Action:

Close factor: 50% (HF > 0.95)
Max repay: $38,000 × 50% = $19,000 USDC

Liquidation bonus: 5%
Bonus value: $19,000 × 0.05 = $950

Total seized value: $19,000 + $950 = $19,950
Seized BTC: $19,950 / $50,000 = 0.399 BTC

Protocol fee (2%): 0.399 × 0.02 = 0.008 BTC
Liquidator receives: 0.399 - 0.008 = 0.391 BTC

Result:

Borrower after liquidation:
  Collateral: 1 - 0.399 = 0.601 BTC
  Debt: $38,000 - $19,000 = $19,000 USDC
  New HF: (0.601 × 50000 × 0.74) / 19000 = 1.17 ✓ Safe

Liquidator profit:
  Paid: $19,000 USDC
  Received: 0.391 BTC = $19,550
  Profit: $550 (2.9%)

Protocol:
  Earned: 0.008 BTC = $400 (treasury shares)

Liquidation Flow

1. The liquidator calls scan_at_risk_positions to find eligible positions.
2. The liquidator submits liquidate or liquidate_with_slippage with a LiquidationRequest.
3. The Lending Canister validates the position's Health Factor and calculates the close factor, seized collateral, liquidation bonus, and protocol fee.
4. The protocol atomically updates the borrower's debt and collateral shares and records the liquidation.
5. The debt asset is collected from the liquidator and the seized collateral is sent to the requested receiver principal.

Atomic State Updates

Liquidations update state atomically before any async operations:

1. Burn borrower's debt shares - Reduces their debt
2. Burn borrower's collateral shares - Seizes collateral
3. Mint treasury shares - Protocol fee captured
4. Record liquidation event - Audit trail

The actual asset transfers (debt repayment, collateral delivery) happen asynchronously via the WAL system.

Finding Liquidatable Positions

The production Lending Canister is:

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Use the cursor-based query to find eligible positions:

scan_at_risk_positions(
  cursor: opt principal,
  scan_limit: nat64,
  max_results: nat64
) -> ScanResult

Results include the borrower principal, Health Factor, weighted liquidation threshold, pool positions, and total debt.

The legacy offset-based query remains available:

get_at_risk_positions(
  offset: nat64,
  limit: nat64
) -> vec LiquidatableUser

Liquidator Requirements

To execute a liquidation, the liquidator must:

• Have sufficient debt asset to repay the borrowed amount
• Call the Lending Canister using their IC principal
• Specify the borrower, debt pool, collateral pool, and debt amount
• Provide the principal that should receive the collateral

Liquidations are publicly callable in production. You do not need to register or have your principal added to an allowlist before submitting a liquidation.

The available execution methods are:

liquidate(request: LiquidationRequest)

liquidate_with_slippage(
  request: LiquidationRequest,
  min_collateral_amount: nat
)

liquidate_with_slippage protects against receiving less than the specified minimum gross collateral amount.

Liquidations are competitive. Successful liquidators typically run automated bots that monitor positions and execute quickly when opportunities arise.

Liquidation execution is separate from the Liquidium SDK. The SDK does not currently provide a liquidation-execution helper.

Economic Security

The liquidation mechanism provides several security guarantees: