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Liquidation

When the total borrowed
TBtTB_t
exceeds the borrowable amount
BAtBA_t
, the loan can be liquidated by a third party:
TBt>BAtTB_t>BA_t
When a third party liquidates a loan, they select a single borrow to repay and a single collateral to seize. The maximum amount
CC
, they can liquidate is given as a percentage
liquidation.maxliquidation.max
(e.g. 50%) of the borrow balance
BBtBB_t
​:
C⩽BBt∗liquidation.maxC\leqslant BB_t*liquidation.max
To incentivise third parties to liquidate other users’ under-collateralized loans, a liquidation bonus
liq.bonusliq.bonus
is earned. If there is insufficient balance of the chosen collateral, then at most the full collateral balance will be seized.
A portion of the liquidation bonus is kept by the protocol as revenue, as determined by the liquidation fee
liq.feesliq.fees
, Any remaining collateral that is not retained by the protocol, will be earned by the liquidator.