Liquidation

Liquidation occurs when a user's collateral is sold to repay outstanding debt. It is governed by Liquidation Collateral Factors, which should not be confused with the Borrowing Factor. The Liquidation Collateral Factor is higher than the Borrowing Factor, meaning that if a user's position falls between these two values, they cannot borrow additional assets but can provide more collateral or repay part of their debt.

When an account’s borrow balance exceeds the limits set by the liquidation collateral factors, it becomes eligible for liquidation. A liquidator — whether a bot, contract, or user — can take action to seize the collateral and return its value, minus a Liquidation Penalty, to the user in the base asset. After liquidation, the user will have no remaining debt and typically will have a surplus balance in the base asset.