Liquidation
This page explains when a position can be liquidated, how protocol-run liquidation is executed, and what the economic outcome looks like for the user.
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 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:
Flash-mint USDB to immediately repay the CDP’s outstanding debt on-chain.
Seize all collateral from the liquidated CDP.
Sell the seized collateral for USDB using on-chain venues.
Repay the flash-minted USDB from step 1.
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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