Liquidation

Liquidation occurs when a user's total borrow has reached a threshold, i.e. the risk factor is greater than or equal to 100%.

$$RiskFactor = \frac{ \Sigma_{borrow} MarketValue_{borrow}}{ \Sigma_{collateral} LiquidationThreshold_{collateral} * MarketValue_{collateral}}$$

Risk factor represents the overall liquidation risk for a given users. When the users add more collateral into the protocol, the risk reduces. Conversely when the users borrow more, the risk increases.

When a user has reached its liquidation threshold, up to 50% (in terms of market value) of the total borrowed asset is sold to the liquidator at a discounted price to repay a portion of the loan.