Liquidations
If a loan reaches 70% of its ADA's value, part of its ADA is sold to repay it. Usually half the debt at a time, with the rest of the ADA staying yours.
#When it happens
A loan can be liquidated once its loan level passes 70%: what you owe is more than 70% of your ADA's value. To decide this, your ADA is valued at the high side of the price, in your favour.
Anyone can liquidate a loan that's over the line. In practice, OMEGA's liquidation service watches every loan around the clock and uses the stability pool to do it.
#What happens to your loan
- Up to half the debt is repaid, using oUSD. The borrow fee owed is paid first; the rest of the oUSD is destroyed.
- ADA worth the amount repaid, plus a bonus, leaves your loan. The bonus is 5% at a 70% loan level, rising evenly to 10% at 90%.
- The rest of your ADA stays in your loan, which carries on with a lower debt and a lower loan level.
A liquidation can never raise a loan's level. The whole debt is repaid at once if repaying half would leave less than the $100 minimum, or if the ADA no longer covers the debt plus the bonus. Once a loan reaches 90%, it may also be repaid in full.
#An example
ADA falls and a loan with $1,000 of ADA now owes $710: a loan level of 71%, so its bonus is 5.25%.
| Before | After | |
|---|---|---|
| ADA in the loan | $1,000.00 | $626.36 |
| Owed | $710.00 | $355.00 |
| Loan level | 71.0% | 56.7% |
Half the debt, $355, is repaid. ADA worth $355 plus the 5.25% bonus, $373.64 in all, leaves the loan. The borrower keeps the remaining $626.36 of ADA and a loan that's back well under the line.
#Where the ADA goes
The liquidator, usually the stability pool, receives the ADA. The protocol keeps 10% of the bonus, which goes to revenue.
#Staying safe
- Borrow below the limit. A loan at 25% has far more room than one at 40%.
- Add ADA or repay if ADA falls. Neither ever needs a price, so both always work.
- Turn on email alerts in My account, to hear when your loan level rises.
Liquidations ignore the pause and the speed limit, so loans in trouble are always dealt with, even in a fast market.
#The limits
- Liquidation level: 70% at launch, never outside 60% to 85%, and at least 10 points above the 40% borrowing limit.
- Bonus: the starting bonus (5% at launch) is never outside 2% to 15%, and it doubles by a 90% loan level.
- Together: liquidation level × (1 + 2 × starting bonus) can never exceed 95%, so there's always ADA to pay the bonus.