> For the complete documentation index, see [llms.txt](https://pu239.gitbook.io/pu239/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://pu239.gitbook.io/pu239/core-features/liquidations.md). # Liquidations #### Understanding Liquidations Liquidation in cryptocurrency lending happens when a borrower's collateral is insufficient to cover their loan, either because the collateral value has decreased or the loan value has increased. This triggers when the borrower's health factor falls below 1, leading to a portion of their debt being considered paid off, along with a liquidation fee taken from the leftover collateral. #### Impact of Liquidation Penalties Liquidation penalties differ depending on the collateral type. For example, using Bitcoin (BTC) as collateral may result in the liquidator receiving a bonus over the covered loan amount, such as an extra 5%. #### Illustrative Example Imagine Ben, who deposits 10 Bitcoin (BTC) and borrows an equivalent of 5 BTC in USD Coin (USDC). Should Ben’s health factor drop below 1, his loan might be liquidated. In this case, a liquidator could repay up to half of Ben’s borrowed amount, about 2.5 BTC in USDC, and receive a bonus, like 5% more than the covered amount. #### Preventing Liquidation To prevent liquidation, borrowers should try to boost their health factor by adding more collateral or repaying part of their loan. Repaying debt generally proves more effective than simply increasing collateral. Maintaining a health factor above 2 is recommended to reduce risks. #### Opportunities for Participation Anyone can participate in liquidations, though the competition is often intense. Many use advanced tools and bots to quickly participate in liquidations and take advantage of the potential rewards. --- # Agent Instructions This documentation is published with GitBook. GitBook is the documentation platform designed so that both humans and AI agents can read, navigate, and reason over technical content effectively. Learn more at gitbook.com. ## Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter, and the optional `goal` query parameter: ``` GET https://pu239.gitbook.io/pu239/core-features/liquidations.md?ask=&goal= ``` `ask` is the immediate question: it should be specific, self-contained, and written in natural language. `goal` is optional and describes the broader end goal you are ultimately trying to accomplish on behalf of the user. GitBook uses it to tailor the answer towards what is most useful for that goal. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.