📜
Lore Finance
  • Directory
  • LORE Lending
    • Introduction
    • Depositing & Earning
    • Borrowing
    • Liquidations
    • Flash Loans + Looping
    • oLORE Redemption
    • Protocol Assets
  • Lore CDP
    • How loreUSD Works
    • Zero-Interest Borrowing
    • Low-Interest Borrowing
    • loreUSD Collateral
    • Minting loreUSD
    • Managing loreUSD Positions
    • Earning Yield With loreUSD
    • Integrated Lending
    • Stability Pool
    • Liquidations
    • Redemptions
    • Recovery Mode
    • Management Fee
  • LORE TOKEN
    • LORE Tokenomics
    • LORE Staking
  • Tutorial
    • Using MetaMask
  • Resources
    • Helpful Links
    • Deployments + Contract Addresses
    • Protocol Security
    • Audits
    • Brand Assets
Powered by GitBook
On this page
  • What is a Partial Liquidation?
  • How much is the liquidation penalty?
  • Can you give me an example?
  • How can I avoid getting liquidated?
  1. LORE Lending

Liquidations

PreviousBorrowingNextFlash Loans + Looping

Last updated 7 months ago

A liquidation is a process that occurs when a borrower's health factor goes below 1 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. This collateral vs loan value ratio is shown in the health factor:

When Hf<1H_f < 1Hf​<1 the position may be liquidated.

In a liquidation, up to 50% of a borrower's debt is repaid and that value + liquidation fee is taken from the collateral available, so after a liquidation that amount liquidated from your debt is repaid. Ironclad offers partial liquidations.

What is a Partial Liquidation?

A partial liquidation means that a liquidator can repay up to 50% of a user's debt instead of having to repay a user's entire debt. Meaning that someone with $1,000 in debt and a health factor < 1, could have $500 of their debt repaid in a single liquidation event.

How much is the liquidation penalty?

The liquidation penalty (or bonus for liquidators) depends on the asset used as collateral.

Can you give me an example?

Sure! Here's two:

Example 1 Lorepa deposits 10 ETH and borrows 5 ETH worth of DAI. If Lorepa’s Health Factor drops below 1 his loan will be eligible for liquidation. A liquidator can repay up to 50% of a single borrowed amount = 2.5 ETH worth of DAI. In return, the liquidator can claim a single collateral which is ETH (5% bonus). The liquidator claims 2.5 + 0.125 ETH for repaying 2.5 ETH worth of DAI.

Example 2 (Partial Liquidation) Besty the cow deposits 5 ETH and 4 ETH worth of ONE, and borrows 5 ETH worth of DAI If Betsy’s Health Factor drops below 1 his loan will be eligible for liquidation. A liquidator can repay up to 50% of a single borrowed amount = 2.5 ETH worth of DAI. In return, the liquidator can claim a single collateral, as the liquidation bonus is higher for ONE(10%) than ETH (5%) the liquidator chooses to claim ONE. The liquidator claims 2.5 + 0.375 ETH worth of ONE for repaying 2.5 ETH worth of DAI.

How can I avoid getting liquidated?

To avoid liquidation you can raise your health factor by depositing more collateral assets or repaying part of your loan. By default, repayments increase your health factor more than deposits. Also, it's important to monitor your health factor and keep it high to avoid a liquidation. Keeping your health factor over 2, for example, gives you more of a margin to avoid a liquidation. You should be mindful of the stablecoin price fluctuations due to market conditions and how it might affect your health factor. For example, the market price of USDC 1.00 might not equal exactly USD 1.00, but for example USD 0.95. The price fluctuations of stablecoins, like any assets, affects your health factor.

If you have questions, please reach out to the Lore team in our official .

Discord