Understanding Liquidations

A brief guide to liquidations on Tectonic

What are liquidations?

Liquidations occur when the value of an account's collateral decreases in value or the borrowed loan increases in value against the collateral.
Liquidations happen whenever the Loan-to-Value (LTV) ratio of a user's account reaches or exceeds the same user's account's Liquidation Threshold.

How do I know if I am close to being liquidated?

An easy way to tell if you are close to being liquidated is to check the Lava Bar on your dashboard. When the Lava Bar is full, your account is at risk of being liquidated, so make sure it never gets there!
To reduce the amount of lava in the Lava Bar, make a loan repayment or add more collateral to your account by depositing more assets.
LTV Details and the Tectonic Lava Bar

That sounds harsh. Why do liquidations happen?

Liquidations are necessary to keep the Tectonic protocol solvent and healthy. They help Tectonic remove bad-debts, by paying off loans that have gone beyond its required Collateral Factor.

Where do I find my account's LTV and Liquidation Threshold?

Your Account LTV and Liquidation Threshold can be found in the Dashboard. Ensure that you have connected your wallet to Tectonic and you will be able to find your account LTV details, like this:
Click on the Details link on your Dashboard to get more account details
LTV Details Popup

What happens during a liquidation?

When a liquidation event is triggered, the following events take place:
  1. 1.
    Liquidators will be able to given asset's Close Factor, required to bring the loan back to a healthy level (i.e. as per the stipulated Collateral Factor)
  2. 2.
    A corresponding amount will then be taken from the collateral, calculated at the collateral’s current market price minus a liquidation discount, netted off by a liquidation fee
  3. 3.
    After the said loan amount is repaid, the loan account will be considered a healthy account (within the Collateral Ratio), and will be taken off the liquidation module