Liquidation Risk

In leveraged yield farming, liquidation is a key mechanism that protects the protocol and lenders. It ensures that borrowed funds are repaid even if the farming position becomes unprofitable due to market volatility.

• What’s Liquidation?

Liquidation occurs when a position’s debt ratio exceeds the liquidation threshold.

When this happens:

• A liquidation bot automatically closes the position

• Borrowed assets are repaid to lenders

• Remaining assets (if any) are returned to the user

This process is essential to protect the health of the protocol and ensure lenders are not exposed to bad debt.