Liquidation Mechanics

When a borrower's collateral value drops below the minimum collateral ratio, their position becomes liquidatable. Liquidators (usually bots) repay part of the debt and receive the collateral at a discount (typically 5-15%). This discount incentivizes rapid liquidation, protecting the protocol from bad debt. Flash liquidations (using flash loans to liquidate without upfront capital) are common. Understanding liquidation risk is crucial: monitor your health factor, use stablecoins as collateral for lower risk, and keep buffer above minimum ratios.