Liquidation

As a type of MEV, liquidation is a process that occurs when a borrower's collateral value does not properly cover their loan/debt value.

In the event of a negative price fluctuation of the debt collateral (i.e., a move below the liquidation threshold), a position can be liquidated. In permissionless blockchains, anyone can repay the debt and claim the collateral.

For all the terms of liquidation, please refer to the glossary:

• Asset

• Borrower

• Liquidator

• Collateral

• LTV

• Liquidation Threshold

Source: Kaihua Qin et al., “An Empirical Study of DeFi Liquidations: Incentives, Risks, and Instabilities,” Proceedings of the 21st ACM Internet Measurement Conference (November 2, 2021): 3, accessed May 2, 2022, http://arxiv.org/abs/2106.06389.