Liquidation

A liquidation event happens when the collateral value drops (i.e. Uniswap USDC/ETH LP Token value drops) and the LTV of the collateral exeeds the liquidation threshold, or bond issuer’s borrowing value increases (i.e. bond issuer’s ETH borrowing appreciation) the LTV of the collateral exeeds the liquidation threshold.

Once a liquidation triggered, there would be liquidation rewards to incentivize liquidators to buy the collateral at a discounted price. Every reserve has a specific liquidation threshold.

The liquidation allows any external actor to purchase part of a collateral at a discounted price.