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Health Factor

The health factor determines if a position can be liquidated: Health Factor=Collateral Value×LTVBorrowed Amount\text{Health Factor} = \frac{\text{Collateral Value} \times \text{LTV}}{\text{Borrowed Amount}}
Health FactorStatus
> 1.5Safe
1.0 - 1.5At risk
< 1.0Liquidatable

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When Liquidation Occurs

A position becomes liquidatable when:
  • IP asset floor price drops significantly
  • Accumulated interest pushes debt too high
  • Health factor falls below 1.0

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Liquidation Process

  1. Detection - Liquidator identifies position with HF < 1.0
  2. Repayment - Liquidator repays borrower’s debt
  3. Collateral Transfer - Liquidator receives IP collateral
  4. Bonus - Liquidator gets discount on collateral value

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Avoiding Liquidation

Best practices to stay safe: - Monitor your health factor regularly - Keep borrowing well below max LTV - Repay debt if prices drop - Add more collateral if needed

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For Liquidators

Liquidators help maintain protocol solvency and earn the liquidation bonus.

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Requirements

  • Monitor on-chain events for unhealthy positions
  • Have sufficient tokens to repay debt
  • Execute liquidation transaction

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Liquidation Bonus

Liquidators receive collateral at a discount, incentivizing quick liquidation of risky positions.