Borrowers must stay below the liquidation threshold of the collateral supplied or they will suffer liquidation. Upon liquidation, the borrower’s new loan amount will be reset to match the ‘Max LTV’, based on the existing collateral amount before the auction.
The difference between the old loan and the new loan will be considered "bad debt". To offset the bad debt, a portion of the borrower’s supply will be put up for auction with a 10% bonus incentive for liquidators.
Liquidation opportunities will be available to those who run liquidation bots, and anyone who is able to provide a bad debt asset will be able to participate in the auction to collect the collateral with the 10% added bonus.
The origination fee is deducted from collateral after liquidation is triggered. Its formula is:
Liquidation is triggered when the following is true:
Bad debt formula
The formula for the bad debt amount ($) when liquidation is triggered (assumes LTV ≤ liquidation threshold):
* Origination Fee is deducted from collateral after liquidation is triggered.
Maximum liquidation amount