Liquidations

Liquidation Point / Avoiding Liquidations

Your account can be liquidated if your Collateral Value falls below your Liquidation Point. The Liquidation Point is calculated as your Borrowed Amount divided by the Account Liquidation Threshold. The Account Liquidation Threshold is the weighted Liquidation Threshold of all of your Collateral.

Your liquidation risk is displayed in the Dashboard in the “Liquidation Risk Bar”

• 100% = Liquidation Point

• Borrow Capacity point = the maximum amount that you can borrow, in relation to your Liquidation Point

• Your Position = the amount that you have borrowed, in relation to your Liquidation Point

If your Liquidation Risk Bar reaches 100%, you can be liquidated.

Liquidations typically occur when your Collateral Value drops due to fluctuations in the collateral (BTC) price. To avoid liquidations, maintain an adequate “collateral buffer” of Collateral Value > Liquidation Point, and take into account historical volatility and price fluctuations for your collateral asset.

The more that you borrow in relation to your collateral, the higher your liquidation risk (from market movements). To reduce risk of liquidation, you can lower your loan-to-value ratio (LTV) by either repaying your loan or adding more collateral.

Granite also offers push notifications to alert you when your account is at risk of liquidation. Learn more about Position Monitoring & Alerts.

How Soft Liquidations Work

Unlike most liquidity protocols, Granite employs a “soft liquidation” mechanism. This means that when a liquidation is triggered, only the minimum amount needed to restore account solvency (Collateral Value / Liquidation Point) is liquidated. This protects borrowers from excessive collateral loss and is more favorable to borrowers than traditional liquidation mechanisms.

Example:

• Collateral Value = $10,000

• Borrowed Amount = $6,000

• Liquidation LTV = 75%

• Liquidation Point = $8,000 ($6,000 / 75%)

• Liquidation Reward = 10% (the amount that the liquidators will receive as a reward for liquidating the position)

If the Collateral Value drops to $7,950 (0.6% below the Liquidation Point):

• In a typical lending protocol: the liquidators would be able to liquidate 50-100% of the position. This would be catastrophic and would wipe out the borrower.

• In Granite: the liquidators can liquidate back to solvency, which would involve repaying $214 of the debt and receiving $235 of collateral as a reward. The borrower would still have $7,715 of collateral left (out of the pre-liquidation value of $7,950).