Liquidation is a mechanism to mitigate the risk of bad debt and protect lenders’ capital. When an account becomes unhealthy, meaning its Loan-To-Value (LTV) on a given market exceeds the market’s Liquidation Loan-To-Value (LLTV), the account’s position can be liquidated.
Who performs liquidations?
Liquidation is permissionless on Morpho, anyone can perform a liquidation by repaying the account’s debt in exchange for the equivalent amount in the market collateral asset, along with an incentive.
What is Health Factor?
The Health Factor is a measure of the collateralization level and represents the state of a borrower’s position.
The higher the health factor, the safer the position from liquidation. When the health factor reaches 1 or less, the position becomes eligible for liquidation.
Health factor is visible on users’ position in the Morpho interface and has to be carefully monitored to avoid a position becoming unhealthy and facing liquidation.
What is Liquidation Price?
The liquidation price is the price of the collateral at which one’s position will become eligible for liquidation.
Liquidation price is visible on users’ position in the Morpho interface and has to be carefully monitored to avoid a position becoming unhealthy and facing liquidation.
How can I avoid liquidations?
You can avoid liquidation by keeping the health ratio of your position above 1. If necessary either by:
depositing more collateral
repaying partially or fully your debt
Health Ratio and Collateral Liquidation price are key informations to monitor to ensure your position stays healthy.
You can read more about liquidation in the documentation here.