💥Liquidations
Introduction
A liquidation is a process that occurs when a borrower's collateralization ratio drops, due to their collateral value not properly covering their loan/debt value. This might happen when the collateral decreases in value or the borrowed debt increases in value against each other. Keep your collateralization ratio above 100% to avoid being liquidated!
How much is the liquidation penalty?
The liquidation penalty (or bonus for liquidators) depends on the asset used as collateral. You can find them in the parameters below.
Ethereum
Arbitrum
Optimism
How can I avoid getting liquidated?
To prevent liquidation, you can either deposit more collateral or repay some of your loan. Generally, repaying loans boosts your collateralization ratio more effectively than making deposits. Regular monitoring of your CR is key to avoiding liquidation. Aiming to maintain your Collateralization Ratio above 150% provides a good buffer to avoid liquidation. At 100% you will be liquidated.
Be aware of sudden price shifts due to market conditions, which can impact your CR. For instance, even stablecoin's value might change. USDC's market value might deviate from its usual 1:1 ratio with USD, affecting your collateral value. Fluctuations in stablecoin prices, like any asset, influence your CR. Further details on oracles and risk are provided here.
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