Liquidation
Liquidation Process
A position becomes eligible for liquidation under two conditions pre-signed/authorized by the borrower:
The oracle-reported price ratio between BTC and the loan asset reaches the liquidation threshold.
The borrower defaults by failing to repay the loan before maturity.
In either case, the Distributed Collateral Manager (DCM, a covenant committee) is authorized to withdraw the full collateral from the collateral vault and initiate the liquidation process.
Any third-party liquidator, whether a user or a bot, can repay a portion of the borrower’s debt in exchange for a corresponding portion of the collateral, including a liquidation bonus (e.g., 5%). For example, repaying $100 of stablecoin debt may yield $105 worth of BTC collateral.
The on-chain liquidation process continues until the outstanding loan principal and accrued interest are fully repaid to the pool. Any remaining collateral is returned to the borrower.
The final Bitcoin settlement transaction includes outputs to:
All participating liquidators
The borrower (for any unsold collateral)
The protocol’s revenue account
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