# Liquidation

### When liquidation can happen

* **Trigger:** A position becomes liquidatable **as soon as Collateral Ratio(CR) < Minimum Collateral Ratio(MCR).**
* **Scope:** Liquidation is **full seizure**. When a position is liquidated, **all collateral** in that CDP is taken to cover the debt.
* **Executor:** Liquidations are **handled by the protocol**.

> Minimum Collateral Ratio(MCR) requirements are different for each collateral assets, please check [Market Page](https://www.bucketprotocol.io/market) for the info.

***

### Liquidation price

For a given **Debt** and **Collateral Amount**, using **MCR** as a ratio (e.g., 110%): Liquidation Price = (MCR \* Debt) / Collateral Amount

This is an approximate trigger price for the collateral. The app also displays your **live liquidation price**.

***

### How liquidation is executed

To maximize reliability and settlement efficiency, the protocol uses the following on-chain flow:

1. **Flash-mint USDB** to immediately repay the CDP’s outstanding debt on-chain.
2. **Seize all collateral** from the liquidated CDP.
3. **Sell the seized collateral for USDB** using on-chain venues.
4. **Repay the flash-minted USDB** from step 1.

<figure><img src="/files/2kgHU7X8Nm3IJ44tHaN7" alt=""><figcaption></figcaption></figure>

***

### Loss and user outcome

* **User loss intuition:** at the liquidation threshold (CR = MCR), the collateral value equals `MCR * Debt`. Because debt must be repaid first and all collateral is seized, the user’s economic loss around the threshold is approximately: \
  User loss ≈ CollateralValue - Debt = (MCR - 100%) \* Debt

**Concrete illustration**

* Suppose a user has collateral valued at **$150** and borrowed **100 USDB**, with **MCR = 110%** .
* If price declines so that collateral value falls to **$109.99** (i.e., CR drops below MCR), the position becomes liquidatable.
* Upon liquidation, **all $109.99** worth of collateral is taken to cover the **$100** debt. The user keeps the 100 USDB previously borrowed.
* **Approximate loss:** `$109.9 - $100 = $9.99`, which matches the formula ≈`(MCR - 1) * Debt = 0.10 * 100 = $10`.

***

### Bad-debt backstop

If an extreme market move causes collateral proceeds to be **less than the debt**, the protocol relies on an **Insurance Fund** as a backstop.

* **Funding source:** a portion of protocol revenue.
* **Purpose:** help ensure the system can continue operating through extreme scenarios.

***

### Avoiding liquidation

If your position approaches the liquidation price, you can reduce risk by either:

* **Depositing more collateral to increase position's CR.**
* **Repaying part of the debt** (repay with USDB, or repay with collateral where available) to **increase position's CR.**

***

### Roadmap

An **improved liquidation mechanism**—aimed at **further reducing user liquidation risk and potential loss**—is in progress and will be documented upon release.


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