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Liquidation
Liquidation is a process of reducing a bad debt risk. Whenever a Health Factor of a user falls below 1, it means the user hasn't managed her/his collateral & debt properly and her/his position is unacceptably risky. In such a situation protocol allows anyone to repay the user's debt and take his collateral. The value of collateral taken is equal to the repaid debt value + liquidation penalty fee.
A liquidation penalty fee must be taken during the process of liquidation to incentivize actors to make liquidation. The liquidation fee is specified for each asset in the Market Rules.
To become a liquidator you need to observe the state of the protocol. Whenever you find that the Health Factor of any user is below one you can perform a liquidation by calling the "liquidate" function.
Last modified 23d ago