Liquidation
Liquidation within Astrolend is primarily a safety mechanism designed to protect the protocol and its users. When a borrower’s account falls below a predefined safety threshold, as determined by the Astrolend protocol, the account becomes subject to liquidation.
How Liquidation Works
Triggering Liquidation: If the health factor of a borrower's account drops below the safety threshold, the account is exposed to liquidation. The health factor is a measure of the account's collateral relative to its liabilities, and falling below the threshold indicates that the borrower’s positions are no longer adequately collateralized.
Liquidation Process: Astrolend employs a partial liquidation approach to restore the borrower's account to a healthy state. Only the minimum amount of the borrower's collateral necessary to bring the health factor back to 1 is liquidated. This approach minimizes the impact on the borrower while ensuring the stability of the protocol.
Liquidation Penalty: Borrowers subject to liquidation incur a 5% penalty on the liquidated portion of their collateral. This penalty is split equally between the liquidator and the Astrolend protocol's insurance fund:
Liquidator Fee: 2.5% of the liquidated collateral is awarded to the liquidator, a third-party entity that executes the liquidation process.
Insurance Fund Contribution: 2.5% of the liquidated collateral is allocated to the asset-specific insurance fund within Astrolend, which helps safeguard the protocol against future risks.
Automatic and Permissionless Process
Liquidations in Astrolend are automatic and permissionless, meaning they are carried out by third-party liquidators without needing any intervention from the borrower or the protocol administrators. These liquidators are incentivized with a fee for successfully executing liquidations, ensuring that the process is efficient and timely.
Configurable Penalties and Fees
Currently, the liquidation penalties, liquidator fees, and contributions to the insurance fund are fixed, but they can be configured for each asset pool:
Liquidation Penalty: 5% of the liquidated collateral.
Liquidator Fee: 2.5% of the liquidated collateral (half of the liquidation penalty).
Insurance Fund Fee: 2.5% of the liquidated collateral (half of the liquidation penalty).
Astrolend’s liquidation model is designed to protect both borrowers and the protocol by restoring account health through a controlled and incentivized process. By maintaining a healthy buffer above the liquidation threshold, borrowers can minimize the risk of liquidation d protect their positions.
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