Liquidations

What are liquidations?

Liquidations occur when the value of a borrower's collateral falls below the required threshold relative to their borrowed amount. To maintain system solvency, part or all of the borrower's collateral is sold to repay the outstanding loan.

What are liquidation thresholds?

Each collateral asset has a liquidation threshold, typically slightly lower than the maximum LTV. If a borrower's LTV exceeds this threshold due to price volatility, liquidation can be triggered.

How do liquidations work on Hydro?

• If a borrower's account exceeds the liquidation threshold, anyone (liquidators) can repay a portion of the borrower's debt.

• In return, the liquidator receives a portion of the borrower's collateral at a discounted rate (liquidation bonus).

• This mechanism ensures Hydro remains solvent and minimizes bad debt.

Useful tips to avoid liquidations

• Maintain a safe borrowing margin (borrow significantly below maximum LTV).

• Monitor collateral value, especially during volatile markets.

• Repay part of the debt or add more collateral if approaching liquidation thresholds.