Liquidation

The Health Factor in lending protocols is a metric that measures the risk of collateral liquidation. It is closely tied to the Collateral Factor (CF), which represents the percentage of an asset's value that can be borrowed against.

Through oracles, we compute your current Health Factor as follows:

$$\text{Health Factor} = 1 - \frac{\text{borrowBalance}}{\sum_{i} (\text{CF}_{i} \times \text{balance}_{i} \times \text{price}_{i})}$$

Once your Health Factor drops to zero, your account becomes vulnerable to liquidation. If your account is in danger of being liquidated, our third-party liquidators may repay up to 50% of your loans in a single transaction by selling the corresponding amount of Collateral. If the account’s health has not become positive, it will be liquidated a second time.

In doing so, these liquidators will earn a profit on the liquidated sum as a bounty to fortify our protocol. For information on becoming a liquidator, please check this github and join community.

Liquidation Example

Suppose Bob supplied $10,000 in USDC and borrowed TON, equivalent to $6,500. If the value of TON increases by 10%, its worth becomes approximately $7,150, rendering Bob's account susceptible to liquidation.

A liquidator then repays 20% of the TON loan, which is $1,430. They take $1,430 from Bob's USDC collateral to cover the TON and earn an additional bonus of 12% (or $171.6) for executing the liquidation.

As a result:

• Bob now possesses $8,398.4 in USDC, calculated as $10,000 - $1,430 - $171.6.

• His TON borrow balance is now $5,720, computed as $7,150 - $1,430.

• The liquidator spent $1,430 in TON but gained $1,630.6 in USDC.

Subsequently, Health Factor increases from -2,1% to 2.2%.