LNDfi
  • Introduction to LNDfi
  • Core Advantages & Features
  • Money Markets
  • Fees & Yield
  • Interest Rate Mechanism
  • Oracles
  • Protocol Features
    • Supply
    • Borrow
    • Repay
    • Withdraw
    • Isolation Mode
    • Liquidation
  • Understanding Risks in LNdfi
    • Types of Risks
  • Technical
    • Flashloan's
  • Security
    • Audit & Security Overview
  • Resources
    • Brand Kit
    • Official Links
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  1. Protocol Features

Liquidation

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Last updated 2 months ago

How Liquidation Works

Liquidation is a key safety feature in LNDfi, triggered when a user's collateral value falls below a certain threshold. This ensures loans are repaid and keeps the liquidity pool stable, even in volatile market conditions.

Liquidation Threshold

The liquidation threshold defines when a loan becomes undercollateralized. For example, if the threshold is 90%, any position where borrowed value exceeds 90% of collateral value is at risk of liquidation.

Understanding the Health Factor (HF)

The Health Factor (HF) measures the risk of liquidation:

  • HF > 1 → Safe position

  • HF < 1 → High risk of liquidation

If the Health Factor drops below 1, the protocol may liquidate collateral to cover outstanding debt.

Liquidation Examples

Scenario 1:

  • Alice deposits 800 S as collateral and borrows 500 S worth of USDC.

  • If her Health Factor drops below 1, liquidation can occur.

  • A liquidator repays 250 S worth of USDC (50% of the debt) and receives 262.5 S as a reward (including a 5% liquidation bonus).

Scenario 2:

  • Alice deposits 400 S + an equivalent amount of stS, then borrows 400 S worth of USDC.

  • If liquidation is triggered, a liquidator repays 200 S worth of USDC and claims stS due to its higher 12% liquidation bonus, receiving 224 S worth of stS.

Liquidation Bots & Permissionless Liquidation

Anyone can act as a liquidator if the process is profitable. To ensure smooth operations, LNDfi will initially deploy automated liquidation bots to manage liquidations efficiently.

Liquidation Penalty

Each collateral type has a liquidation penalty, which incentivizes liquidators to participate while maintaining protocol stability. The penalty varies based on asset risk.