Liquidations.
A liquidation is what keeps the protocol solvent when collateral suddenly isn't worth enough to cover a borrower's debt. This page covers both sides — how to avoid being liquidated as a borrower, and how to participate as a liquidator.
Health factor < 1
When your collateral value can no longer cover your outstanding debt — typically due to adverse price movements or accruing interest — your position becomes eligible for liquidation by anyone on the network.
Keep a comfortable buffer
Borrow conservatively, watch the health factor, add collateral or repay debt before it gets close to 1. Stable collateral helps reduce sudden drops driven by price volatility.
Monitor
Liquidators (often bots) scan the protocol for accounts with health factor < 1.
Repay
The liquidator repays a portion of the borrower's outstanding debt on their behalf.
Receive collateral
In return, the liquidator receives an equivalent value of the borrower's collateral plus the liquidation bonus.
Liquidation incentive
A bonus paid to the liquidator on top of the seized collateral. Calibrated per market by governance — high enough to attract liquidators, low enough to be fair to borrowers.
Close factor
The maximum percentage of a borrower's debt that can be repaid in a single liquidation. A 50% close factor caps each liquidation at half the position — preventing complete wipeouts.
Permissionless
Anyone can liquidate. Most liquidations are executed by automated bots that race to claim the bonus, ensuring under-collateralized positions are resolved quickly.
Watch the indicator
Check the health factor at least daily during volatile markets. Set wallet alerts if your tooling supports it.
Add collateral
Top up your supplied amount to push the health factor higher whenever it starts trending down.
Repay debt
Pay down some borrow to widen the safety margin. Even a partial repayment changes the math.
Use stable collateral
Less volatile assets (stables, blue-chips) reduce sudden health-factor drops compared to long-tail assets.