Liquidations on Liquity

How do liquidations work on the Liquity protocol

How do Liquidations work on Liquity?

Liquidation is needed to ensure that the protocol can cover outstanding debt before a Trove’s collateral ratio falls below 100%. The Stability Pool is Liquity’s primary mechanism to instantly absorb Troves with insufficient collateral. It is maintained by users who deposit LUSD in exchange for the future collateral of liquidated Troves. When a Trove falls below the minimum collateral ratio of 110%, the system liquidates its debt by burning an identical amount of LUSD tokens held in a Stability Pool. This is unlike lengthy processes existing platforms that auction off collateral, thus facing difficult market situations and further price drops.

What happens when your Trove is liquidated?

If your Trove is liquidated your Trove will be closed for you this will clear your Trove and you will have no remaining debt. In most cases, a liquidated Trove will be completely liquidated. In some cases you may haves some collateral remainder. See: Claim Redeemed ETH

When Troves are liquidated the entire debt of the Trove is repaid with ETH collateral, in most cases, this will leave no remaining ETH in the Trove.

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