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What Mechanism Is Used for Liquidating Collateral in a Decentralized Loan?

The smart contract incentivizes external liquidator bots to repay the loan in exchange for purchasing the borrower's collateral at a discount.
Greeks.Live06.11.25

What Mechanism Is Used for Liquidating Collateral in a Decentralized Loan?

When the collateral's LTV ratio exceeds the liquidation threshold, the smart contract allows a "liquidator" (an external bot or user) to repay a portion of the loan on behalf of the borrower. In return, the liquidator is allowed to purchase the borrower's collateral at a discount.

This process is automated and incentivized by the discount, ensuring the loan is rapidly repaid to maintain solvency.

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