How it works
Health and liquidation
How a loan's health is measured, when it can be liquidated, and who bears a shortfall.
Soft liquidation converts collateral gradually, but it is not the only backstop. A loan whose bands can no longer cover its debt is closed by a hard liquidation, as on any lending market.
Health
The oracle price here is the cautious one: Pyth's price minus its confidence interval. The liquidation discount is 5% on SOL and JitoSOL and 10% on NVDAx.
Conversion helps health. As bands sell collateral for dollars, the dollars count in full while the collateral they replaced counted at a discount, and a dollar does not fall with the price.
When a loan can be liquidated
When health is below zero, anyone can call liquidate with a fresh price. Usually that happens only if the price falls through your whole range and keeps falling, or jumps past your bands in one step.
What a liquidation does
- The dollars in your bands go back to the pool, toward your debt.
- The liquidator pays the discounted value of the collateral in your bands, in USDC, and receives that collateral.
- Your debt is cleared and the loan account is closed.
- If steps 1 and 2 fall short of the debt, the difference is recorded as bad debt and taken from the pool's value. That market's lenders bear it.
The liquidator pays only what the collateral is worth after the discount, not the whole debt. Asking liquidators to repay the full debt of an underwater loan would leave nobody willing to do it, and a bad loan that stays open grows worse for lenders.
Gap liquidation price
The app shows each loan's gap liquidation price: the price at which health would reach zero if the price jumped there in one step, with nothing converting on the way.
Conversion on the way down raises the dollars in your bands and so lowers the gap price. A slow fall is much safer than a jump. If your bands already hold more dollars than you owe, there is no gap price at all.
Staying clear
- Borrow less than the limit. Debt is the only number in the gap price you choose directly.
- Repay when the price enters your range. Repaying lowers the gap price immediately.
- Watch NVDAx over weekends. Its oracle is frozen while the market is closed, and the Monday open can jump.