A liquidation is a process that occurs when a borrower's health factor goes below 1 due to their collateral value not properly covering their loan/debt value. This might happen when the collateral decreases in value or the borrowed debt increases in value against each other. In a liquidation, 50% of a borrower's debt is repaid and that value + liquidation fee is taken from the collateral available, so after a liquidation that amount liquidated from your debt is repaid.

How much is the liquidation penalty?

The liquidation penalty (or bonus for liquidators) depends on the asset used as collateral. You can find every assets' liquidation fee in the risk parameters section.

Can you give me an example?

When Risk Rate<100%(Liquidation Line), a liquidator will be able to call the liquidation contract to use part of your collateral to pay 50% of your debt. In return, the liquidator will receive 5% (varies from asset to asset, for more details please refer to risk parameters section.) of your liquidated collateral as liquidation penalty. After liquidation, your Risk Rate shall be above 100%. If in any case, it drops below 100% again due to further price fluctuation, the liquidation process will happen again.
Example, if you have deposited 2,000 BUSD and your loan in BNB is $1,000 worth. When liquidation happens due to the increasing of the BNB price, $500 worth (50% of your loan) will be deducted from your collateralized BUSD and extra $25 (liquidation penalty) will also be deducted and send to the liquidator.

How can I avoid getting liquidated?

To avoid liquidation you can raise your risk rate by depositing more collateral assets or closing position to repay your loan.
Last modified 3mo ago