When the total borrowed TBtTB_t exceeds the borrowable amount BAtBA_t, the loan can be liquidated by a third party:


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​:

Cβ©½BBtβˆ—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.

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