How it works
Automated liquidators can repay part of the debt and claim collateral, often with an incentive or discount. The process is governed by smart contracts and price oracles.
What to check
Check the exact health factor, collateral threshold and penalty for the protocol. Users should also understand how rapidly oracle prices update during volatile markets.
- Track health factor
- Know oracle update method
- Plan for network congestion
Limits and risks
Liquidations can happen automatically without negotiation. Congested networks can make it harder to add collateral or repay debt before the threshold is crossed.
Primary sources
Bitcoin Developer Reference↗Ethereum developer documentation↗FATF: Virtual Assets↗General information only. Investment products can lose value, and terms, fees and regulation can change.