🔄 The Liquidation Process: Step by Step
Understand how liquidators protect lending protocols
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Liquidation happens in precise steps, executed by smart contracts and liquidator bots. Let's walk through exactly how a position gets liquidated.
🎮 Interactive: Live Liquidation Simulation
Adjust ETH price to see how it affects liquidation status:
ETH Price$2,000
$800Liq: $1176$3000
Collateral
10 ETH
$20,000
Borrowed
$10,000
Health Factor
1.50
Status
Safe
🎮 Interactive: Step-by-Step Process
Click through each step of a liquidation:
🔍Step 1: Detection
Liquidation bots continuously monitor all borrow positions across the protocol, checking health factors in real-time.
// Pseudo-code for bot monitoring
for (position in allPositions) {
healthFactor = calculateHF(position)
if (healthFactor < 1.0) {
// Position is liquidatable!
triggerLiquidation(position)
}
}
What They Check
- • Current collateral price
- • Outstanding debt amount
- • Liquidation threshold
- • Calculated health factor
Frequency
Professional bots check every block (~12 seconds on Ethereum). Some use mempool monitoring for even faster detection.
Partial vs Full Liquidation
🔪
Partial Liquidation
Most protocols (Aave, Compound) only liquidate enough collateral to bring health factor back above 1.0. Borrower keeps remaining collateral.
Example
$20k collateral, $12k debt (HF = 0.9). Liquidate $7k collateral to repay enough debt → HF back to 1.2. Borrower keeps $13k collateral.
💥
Full Liquidation
Some protocols (MakerDAO, older designs) liquidate entire positions. Borrower loses all collateral, though excess value may be returned.
Example
$20k collateral, $12k debt. Entire $20k seized. After repaying debt + penalty, $7k excess returned to borrower (if protocol design allows).