Glossary · DeFi
Liquidation
Also: liquidated, liquidator
Liquidation is the process in which a third party repays part of an undercollateralized borrower's debt and receives their collateral at a discount, closing the shortfall before the protocol takes a loss.
Related terms
- Health factor
- Health factor is a lending protocol's single summary of how close a position is to liquidation, computed as risk-adjusted collateral value divided by debt value, with liquidation triggered when it falls below one.
- Collateral
- Collateral is the asset a borrower locks in a lending protocol to secure a loan, seizable by liquidators at a discount if the loan's value rises too far against it.
- Bad debt
- Bad debt is debt left outstanding after a position's collateral has become worth less than what it owes, a shortfall that falls on the protocol's lenders or its treasury rather than on the borrower.
Stay informed
Verifiable crypto journalism, delivered to your inbox.
Weekday mornings. No hype. No financial advice. Just what happened and why it matters.
No spam. Unsubscribe anytime. Read our privacy policy.