Liquidation

When the total borrowed $TB_t$ exceeds the borrowable amount $BA_t$, the loan can be liquidated by a third party:

$$TB_t>BA_t$$

When a third party liquidates a loan, they select a single borrow to repay and a single collateral to seize. The maximum amount $C$, they can liquidate is given as a percentage $liquidation.max$ (e.g. 50%) of the borrow balance $BB_t$​:

$$C\leqslant BB_t*liquidation.max$$

To incentivise third parties to liquidate other users’ under-collateralized loans, a liquidation bonus $liq.bonus$ 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 $liq.fees$, Any remaining collateral that is not retained by the protocol, will be earned by the liquidator.