Overview
Auto liquidation is automated liquidation triggered by smart contracts when a position undercollateralizes. It protects lending pools from bad debt. Liquidators are incentivized to act.
How It Works
When a position’s collateral ratio falls below the threshold, the protocol allows liquidators to repay the loan and seize collateral. This happens automatically via smart contracts. The process keeps pools solvent.
Why It Matters
Auto liquidation is essential to DeFi safety, preventing losses to lenders. It creates a market for liquidators. Its parameters affect risk and capital efficiency.
Related Concepts
Auto liquidation relates to Liquidation, Collateral, and Lending. It protects Pools from bad debt.