Liquidation

Liquidation is the automatic unwinding of a position once collateral value falls under a threshold. In lending it repays a borrower’s debt; in perpetuals it closes a leveraged position whose margin has run out. It is the protocol’s primary defence against bad debt.

Concrete lending scenario

You deposit 1000 TON at 5 USDT and borrow 3000 USDT. Collateral ratio = 5000 / 3000 ≈ 1.67. The protocol’s liquidation threshold is, say, 1.33.

• TON drops to 4 USDT → collateral = 4000 USDT, ratio = 1.33. Trigger.
• A liquidator repays part of your debt in USDT and takes the corresponding TON with a 5–10% discount (liquidation bonus).
• You keep less collateral, owe less, and effectively pay the bonus to the liquidator.

In a sharp drop you also eat slippage on the forced sale.

Perpetuals scenario

At 10x leverage on TON at 5 USDT, a ~10% adverse move wipes the entire margin. Maintenance margin is typically 0.5–1%; once equity falls below it, a liquidator closes the position and pockets the remaining margin as premium.

Who liquidates

• Liquidator bots. Third-party software monitors positions and submits a transaction the moment the ratio crosses. Reward: the liquidation bonus.
• The protocol itself in some designs (especially perps with a central liquidity vault).
• Auctions / Dutch auctions — some protocols sell bad debt through a falling-price auction.

How to avoid being liquidated

• Stay clear of the limit. A 1.5x cushion above the threshold is standard practice.
• Alerts. Wallets and third-party services notify on approach to liquidation price.
• Partial close. Topping up collateral or paying part of the debt before the trigger is cheaper than getting liquidated.
• Mind the oracle. Liquidation price is computed against the protocol’s oracle, not exchange tickers. During noisy moves, the oracle can drift a few percent from spot.

Liquidation is a healthy mechanism — but for the user it is the bonus plus slippage. Manage the position in advance.