Auto-Deleverage is a feature designed to reduce the risk of full liquidation. When enabled, if your LTV exceeds a pre-set threshold, a portion of your position may be closed to bring it back to safer levels. This mechanism relies on on-chain liquidators and may not keep up with rapid market movements.
Once enabled, it aims to keep a position open as much as possible by closing only a portion to restore its health, charging a fee only on the amount closed.
Auto deleverage is not enabled on all markets. Market eligible are identified with this logo:
The Auto Deleverage Liq. LTV (pre-set threshold) is specific for each market.
Practical example
Take a scenario where a borrow position has Auto Deleverage enabled. Instead of liquidating the entire 1 cbBTC, Auto Deleverage could close just 0.1 cbBTC, preserving 0.9 cbBTC collateral and avoiding liquidation. A deleveraging fee is paid only on the 0.1 cbBTC.
Auto Deleverage happens before default liquidations. If Auto Deleverage cannot execute properly, the borrower will be liquidated using Morpho's default liquidation mechanism.
For example, consider a market with 91.5% LLTV. A position can be auto-deleveraged between an LTV of 90.00% and 91.49%, after which it's eligible for default liquidation. The % of the position that can be closed increases from 0.10% (at 90.00% LTV) to 25% (at 91.49% LTV).
The % fee paid for Auto-Deleverage is the same as the default liquidation. However, the fee is paid on a much smaller portion of the position instead of the entire position, reducing the total impact on the borrower.
Auto Deleverage happens before default liquidations. If Auto Deleverage cannot execute properly, the borrower will be liquidated using Morpho's default liquidation mechanism.
Auto Deleverage is powered by Pre-Liquidations. When borrowers opt in, they authorize a pre-liquidation contract to apply custom pre-liquidation settings that protect their positions.
You can find the technical details on how pre-liquidation works in the Morpho documentation here.
By using this feature, you agree to the Terms of Use and acknowledge that you are responsible for monitoring your own position.
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