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How do Liquidations work in Liquity?

Written by Nikola Milinkovic
Updated 4 months ago

To ensure that the entire stablecoin supply remains fully backed by collateral, Troves that fall under the minimum collateral ratio of 110% will be closed (liquidated).

The debt of the Trove is canceled and absorbed by the Stability Pool and its collateral distributed among Stability Providers.

The owner of the Trove still keeps the full amount of LUSD borrowed but loses ~10% value overall hence it is critical to always keep the ratio above 110%, ideally above 150%.

Who can liquidate Troves?

Anybody can liquidate a Trove as soon as it drops below the Minimum Collateral Ratio of 110%. The initiator receives a gas compensation (200 LUSD + 0.5% of the Trove's collateral) as reward for this service.

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