Liquidation
Forced closure of an undercollateralized position, typically with a penalty to the borrower.
In-Depth Explanation
When collateral value falls below the required threshold, liquidators can repay the debt and claim collateral at a discount (the liquidation bonus). This protects lenders but costs borrowers. Liquidation cascades can occur in volatile markets as forced selling drives prices lower, triggering more liquidations.
Related Terms
Health Factor
A metric showing how close a lending position is to liquidation, where below 1 means liquidatable.
Collateral
Assets deposited as security for a loan, which can be seized if the borrower fails to repay.
Collateralized Debt Position
CDPA loan where users deposit collateral to mint or borrow assets, with liquidation risk if collateral value falls.
More in Trading & Markets
View all →Slippage
The difference between the expected price of a trade and the actual executed price.
Maximal Extractable Value
MEVValue that can be extracted by reordering, inserting, or censoring transactions within a block.
Sandwich Attack
An MEV extraction technique where an attacker places transactions before and after a victim's trade to profit from the price impact.
Frontrunning
Placing a transaction ahead of a known pending transaction to profit from the anticipated price movement.