Liquidation

Liquidation is the process whereby collateral tokens are seized and sold to a liquidator in the event of default.

Liquidations occur without notice. Borrowers are advised to monitor their transaction exposure closely. To the extent a borrower posts multiple collateral tokens against a loan, borrowers do not have the ability to determine which collateral is sold in liquidation and in what order their collateral is liquidated.

Liquidation

When a borrower's collateral becomes eligible for liquidation, anyone choosing to act as a liquidator may purchase a portion of the borrower's collateral tokens at the prevailing Chainlink oracle price by calling the batchLiquidation function and specifying the amount that the liquidator wishes to repay on behalf of the borrower. The proceeds from the liquidation (total repayment amount) go towards paying down the borrower's debt. Liquidated damages are applied to the collateral liquidated in a liquidation transaction such that the total collateral seized from the borrower is equal to:

$\text{totalCollateralSeized} = (1+\text{liquidatedDamages}) * \dfrac{\text{totalRepaymentAmount}}{\text{collateralPrice}}$

where liquidated damages are split between liquidation incentives to the liquidator and protocol liquidated damages:

$\text{liquidatedDamages} = \text{liquidatorIncentive} +\text{protocolLiquidatedDamages}$