A liquidation is series of events that can occur when a borrowers Health Factor reaches 1. The Health Factor is a numeric representation of the safety of deposited assets relative to borrowed assets. The higher the Health Factor is, the safer your deposited funds are against a liquidation scenario. A liquidation might be triggered because the value of your collateral drops, the value of your borrowed assets increases, and/or because of the accumulated interest owed on a debt.
Health Factor = (Total Collateral Deposits * Liquidation Threshold) / Total Debt
What happens in a liquidation scenario?
In a liquidation scenario, as much as 50% of the borrower's outstanding debt is repaid by a liquidator. In return for repaying the debt, the liquidator is able to claim from the borrower's deposited collateral, the amount repaid plus a liquidation fee.
How much is the liquidation fee?
The liquidation fee can vary for each market. Up to date liquidation fee percentage amounts can be found in risk parameters.
Can you give me an example?
- Alice deposits 100 CELO and borrows 50 CELO worth of cUSD
- Alice's Health Factor reaches 1
- Bob is able to claim from Alice a single collateral asset equal to the amount of debt repaid plus a liquidation fee
- For repaying 25 CELO worth of cUSD, Bob claims 26.5 CELO = (25 CELO + 5% * 25 CELO)
What is the liquidation threshold?
The Liquidation Threshold is the percentage at which a loan is defined as undercollateralized. The current liquidation threshold for all markets is 80%. A liquidation threshold of 80% means that if your Loan-To-Value ratio goes above 80%, then your loan is undercollateralized and some of your collateral can be liquidated. The delta between the Maximum Loan-To-Value (75%) and the Liquidation Threshold (80%) is a safety cushion for borrowers.
LTV = Loan Value in units of CELO / Collateral Value in units CELO
How do I calculate my liquidation price?
Liquidation Price = Market Price per Unit of Collateral / Health Factor
For example: Collateral Asset = CELO Borrowed Asset = cUSD CELO/cUSD Market Price = 5 (that is to say that 1 unit of CELO can buy 5 units of cUSD) Health Factor = 2 Liquidation Price of CELO/cUSD = 5 / 2 = 2.5 CELO/cUSD
How can I avoid getting liquidated?
You can avoid liquidation by raising your Health Factor. You can raise your Health Factor by depositing additional collateral or by repaying some of your debt. Can I deposit an asset without it being at risk of liquidation?
Yes, you can toggle a deposited asset 'off' as collateral by tapping on the account tab, tap the dropdown of the asset, toggle the 'Is Collateral' switch from on (blue) to off (greyed out), and confirm the transaction. If you have borrowed from Moola then you may not be able to turn off 'Is Collateral' because doing so would put your Health Factor at or below 1.
How can I track my Health Factor?
You can view your Health Factor by connecting your wallet address at app.moola.market. You can also track your Health Factor using the @MoolaMarketBot on Telegram. Get started by adding the wallet addresses and Health Factor thresholds you would like for the bot to monitor. It can watch as many addresses as you want. To add monitor request, use:
/add WALLET_ADDRESS HEALTH_FACTOR
For Example: If you want to be notified when the Health Factor of wallet address 0xe4c183d99b463cc2190b737b51ae26cc6f17ed62 drops below 1.25 then you would type
/add 0xe4c183d99b463cc2190b737b51ae26cc6f17ed62 1.25
How can I become a liquidator?