Liquidations

What are liquidations?

To ensure that the entire stablecoin supply remains fully backed by collateral, Troves that fall under the minimum collateral ratio are subject to being closed (liquidated).

When will I get liquidated?

You will be liquidated if your Trove exceeds the maximum allowable loan-to-value (LTV) ratio established by the protocol. In this scenario, your Trove will be completely closed, your collateral will be liquidated, and the proceeds will be distributed to the liquidator. You will not be required to repay the debt.

To prevent liquidation, it is crucial to maintain an LTV below the liquidation limit. You must ensure that you do not exceed the maximum LTV threshold. If your collateralization ratio falls below the required level, liquidation will occur to safeguard the overall stability of the system.

Who can liquidate Troves?

Anyone can liquidate a Trove once it goes above the liquidation LTV threshold. The initiator receives a reward for the service.

How do you liquidate a trove, and what does the liquidator receive?

To liquidate a trove:

1. Identify under-collateralized troves: Monitor troves and identify those whose Loan-to-Value (LTV) ratio exceeds the critical threshold of liquidation LTV.

2. Initiate liquidation: Execute the liquidation function, which requires paying the full outstanding debt of the selected trove.

3. Receive liquidation reward: Upon successful repayment of the debt, the liquidator receives a penalty set for collateral as a reward for the debt they have just paid. The rewards are received in the liquidator's wallet along with the liquidated collateral.

Do I lose money when I get liquidated?

Yes, you lose part of your collateral when your Trove is liquidated. If your Loan-to-Value (LTV) exceeds the liquidation threshold, anyone can repay your debt and claim your collateral, along with an additional portion as a reward. This means you lose more collateral than the debt you owed, resulting in a financial loss.