Liquidations
A position whose collateral ratio falls to 130% or below can be liquidated by anyone holding eUSD. Liquidation keeps the system solvent by retiring risky debt before it becomes bad debt.
Mechanics
liquidate(collateral, owner, amount, hint) burns up to amount of the keeper's own eUSD against the position's debt. In exchange the keeper receives collateral worth repaid × 1.05 (the 5% bonus), capped at the position's collateral.
| Rule | Detail |
|---|---|
| Threshold | Collateral ratio ≤ 130% |
| Bonus | 5% of the repaid value, paid in eSPY |
| Partial liquidation | Supported; the remainder is re-sorted in place and may not be left below the minimum debt |
| Surplus | On a full close, remaining collateral transfers to the owner in the same transaction |
| Underwater positions | No refund; the keeper absorbs the shortfall |
Worked example
Position: $150 of eSPY collateral, 100 eUSD debt. eSPY drops until the ratio hits 128%.
| Step | Amount |
|---|---|
| Keeper burns | 100 eUSD |
| Keeper receives | $105 of eSPY (5% bonus) |
| Owner receives back | $23 of eSPY surplus, same transaction |
| Owner keeps | The 100 eUSD they originally minted |
The owner loses the buffer between 130% and 105%, not their whole position, and never owes anything beyond the collateral.
Direct keeper model (no stability pool)
Liquity v1 absorbs liquidations through a pre-funded Stability Pool. Own uses direct keeper liquidation instead: the keeper must hold or acquire eUSD at the moment of liquidation. This is far less code (the stability pool is where Liquity v2's critical bug lived), at the cost of depending on keepers holding eUSD inventory in stressed markets. The 5% bonus is the standing incentive for that inventory.
Partial liquidation matters here: a whale who mints most of the supply cannot make themselves unliquidatable, because any keeper with any amount of eUSD can clear an unhealthy position in chunks.