Skip to content

Liquidations

ELI5: If your loan becomes too risky (collateral worth too little vs debt), anyone can liquidate you — pay some of your debt, take collateral plus a bonus. It's how the protocol stays solvent.

Health factor

Health factor (HF) measures safety:

HF = (risk-weighted collateral value) / debt
  • HF > 1 → safe
  • HF < 1 → liquidatable

At launch, 200% min collateral ratio corresponds to HF = 1.0 at the liquidation threshold.

Two paths: liquidate vs bad debt

Path When Who
liquidate HF < 1 but enough collateral for debt + bonus Permissionless liquidators
settle_bad_debt Collateral worth < debt (insolvent) Permissionless settlers

Liquidate: liquidator burns TARE, receives collateral + ~10% bonus. Position must improve.

Bad debt: collateral seized to seized_collateral, debt zeroed, surplus buffer burned up to shortfall, remainder booked as total_bad_debt.

flowchart TD
    HF{Health factor}
    HF -->|above 1| Safe[Position safe]
    HF -->|below 1, solvent| Liq[liquidate]
    HF -->|insolvent| Bad[settle_bad_debt]
    Bad --> Surplus[Surplus buffer / bad debt ledger]

Flywheel connection

  • Liquidation bonuses and stability fees feed TARE surplus → sTARE + Keep via SurplusSplitter.
  • Coil does not liquidate CDPs — only TareEngine does.

See TareEngine and Liquidations.

What can go wrong

User risks

  • Price drops can liquidate you without warning — monitor HF.
  • Deep insolvency may not be clearable via liquidate; settle_bad_debt socializes loss via surplus/bad-debt accounting.
  • Gas spikes on mainnet make self-repaying harder; plan buffers.