Liquidation system

The liquidation system is the core mechanism of lending platform in order to avoid bad debts. When the borrowers’ account borrow limit is over 100% due to the price fluctuation of collateral assets (value decreasing) or borrowed assets (value increasing). In other words, the value of collateral assets is lower than the Liquidation Threshold. The principle of liquidation is to sell part of the borrower collateral bellowed the market price to pay the principal and interest.

The borrow limit is the debt borrowed percentage which reflect the health of the user’s debt. The lower the borrow limit percentage is the lower possibility of liquidation. Users should always monitor their Borrow limit, especially under the high price fluctuation of collateral assets.

Neku lending protocol is using a discount liquidation system which means the liquidator can exchange the collateral assets at a discounted price. The discount rate is the same as liquidation reward for the liquidator, the current liquidation reward is 5% in Neku lending protocol. Liquidation reward is a great incentive for a liquidator to perform a liquidation procedure in Neku Liquidation system and to keep the health of liquidity pool and efficiency of the liquidation process.