What it means
When a lending protocol sells a borrower's collateral because its value has fallen too close to the loan.
The sale repays the loan, and the borrower usually loses a penalty on top. It's what protects lenders.
How it works
In fast crashes liquidations can fail to keep up, which is one of the risks for lenders.
Related terms
| Term | What it means |
|---|---|
| Collateral | What a borrower deposits to secure a loan, which the protocol can sell if the loan isn't safe any more. |
| Health factor | A number that shows how safe a loan is: above 1 it's safe, at 1 or below it can be liquidated. |
| Oracle | A service that brings outside data, such as prices, onto a blockchain for smart contracts to use. |
This glossary explains terms in general. It isn't investment, tax or legal advice.