🚨Liquidation

Liquidation is a crucial mechanism in Joule Finance’s Money Market that ensures the stability and health of the lending ecosystem. When a borrower’s position becomes undercollateralized, meaning the value of their collateral falls below a certain threshold compared to their borrowed amount, their position becomes eligible for liquidation.

Liquidations depend on health factors. If the health factor of a particular user falls to 1 or below, liquidation is triggered. The Health Factor represents the safety of a user’s position against liquidation, with a higher value indicating a more secure position. The calculation is as follows:

Health Factor = Collateral Value x Liquidation Factor Borrowed Value

When a position is liquidated, the liquidator needs to repay a certain percentage of the loan. In return, the liquidator receives the collateral plus a bonus for liquidating the position. This incentivizes users to monitor the health of their positions and participate in the liquidation process when necessary.