Lending (planned)
Liquidation
Liquidation is what protects the USDC lent to borrowers: if your collateral falls far enough in value, part of it can be sold to repay part of your loan. It is automatic, it is on-chain, and it costs you money. This page explains when it will happen and how to stay clear of it.
When a loan can be liquidated
A loan can be liquidated as soon as its LTV reaches its liquidation LTV. With one collateral asset, that is the asset’s liquidation LTV; with several, it is their value-weighted blend.
liquidatable when debt ≥ Σ (collateral value × liquidation LTV)
Your LTV can reach that point in two ways: your collateral falls in price, or your debt grows as interest accrues. Price is almost always the reason.
Your liquidation price
For each collateral asset, the liquidation price is the share price at which your loan would become liquidatable, holding everything else constant.
liquidation price = (debt − other collateral’s liquidation value) ÷ (shares × liquidation LTV)
Example. Say you deposit 10 wSPYx worth $600 each ($6,000) and borrow $2,250. With wSPYx’s planned liquidation LTV of 75%, the liquidation price is 2,250 ÷ (10 × 0.75) = $300 per share — a 50% drop. The prices are made up for the arithmetic.
What happens in a liquidation
A liquidator repays part of your debt and receives an equivalent value of your collateral plus a liquidation bonus. That bonus is your loss. Only part of a loan is liquidated at a time, enough to bring it back to safety; a deeper fall can trigger further liquidations.
How to stay clear
- Borrow less than you can. The further your LTV sits below the max, the larger a price drop it can absorb.
- Act early. Repay part of the loan or deposit more collateral before the liquidation point, not at it.
- Keep HYPE for gas. You need HYPE on Elysium to repay or add collateral. Don’t let it run out.
- Spread your collateral. Several stocks are less likely to fall together than one. Broad indexes like wSPYx and wQQQx move less than single stocks.