Liquidation

When an account’s borrow balance exceeds the limits set by liquidation threshold, it becomes eligible for liquidation. (The liquidation condition is equivalent to 'Borrow limit used ≥ 100%') Liquidation involves seizing collateral from under-collateralized accounts to repay outstanding debts.

Evoq has its own liquidators that directly monitor users' positions and replicate all on-chain lending parameters, such as collateral factor, liquidation threshold, and close factor. This ensures the same liquidation guarantees as those in the underlying lending protocols, helping users trust that their liquidation conditions will be handled consistently across both Evoq and the underlying protocols.

Key Terms

Collateral Factor

The collateral factor is the percentage of an asset's value that can be used as collateral for borrowing. For instance, if the collateral factor is 75%, a user can borrow up to 75% of the collateral's value. This buffer helps cover potential losses if the collateral's value drops.

Liquidation Threshold

The liquidation threshold is the point at which a user's collateral value is too low to cover its borrowed amount, triggering liquidation. When the collateral value falls below this threshold, it may be sold to repay the debt and bring the debt status back to a safe level.

Close Factor

The close factor is the percentage of a borrower's outstanding debt that can be repaid in a single liquidate transaction. If the close factor is 50%, a liquidator can repay up to 50% of the debt in one transaction, helping to manage the liquidation process more smoothly without requiring full repayment at once.

Liquidation Incentive

The additional collateral given to liquidators serves as an incentive to perform liquidation on accounts that are underwater. For example, if the liquidation incentive is 10% and the protocol share is 4%, liquidators receive an extra 6% of the borrower’s collateral, while the remaining 4% goes to the protocol reserve.

Protocol Share

The protocol share refers to the portion of revenue from liquidations allocated to the protocol, supporting sustainability and risk management.