Example 1: Partial (Soft) Liquidation
A user borrows 100,000 USDC using 1 BTC (125,000$) as collateral.
Initial LTV: 80%.
Soft and hard liquidation thresholds: 90% and 95%.
BTC drops to $110,000 → LTV rises to 91% → soft liquidation triggers.
Soft Liquidation Process
- Liquidation splits into 10 × 0.1 BTC chunks
- Each chunk swapped with 0.5% live price protection
- LP competition typically executes swaps near market rate
First chunk:
- 0.1 BTC swapped for 10,980 USDC
- 5 bps liquidation fee applied (~5.5 USDC)
- Remaining 10,974.5 USDC repays loan
Debt after first chunk → 89,025.5 USDC → Collateral: 0.9 BTC → LTV: 89.9%
Soft liquidation continues until LTV falls below the “stability margin.”
Second chunk executes → debt 78,051 USDC → collateral 0.8 BTC → LTV 88.7% → liquidation stops.
Soft liquidation protected the position with minimal impact.
Example 2: Hard Liquidation
Continuing from the earlier example (after the first chunk’s execution):
- Debt: 89,025.5 USDC
- Collateral: 0.9 BTC
BTC drops to $104,000 → LTV = 95.1% → hard liquidation triggers.
Hard Liquidation Process
- Live price protection widens to 5%
- Larger chunks sold
- Priority shifts to execution speed
0.8 BTC swapped over several executions:
- ~79,200 USDC recovered
- 5 bps fee applied (~39.6 USDC)
Debt: 9,865.1 USDC Collateral: 0.1 BTC LTV: 94.9%
Final chunk sold, loan fully repaid, and remaining USDC returned to the user.
TL;DR
- Chainflip liquidations are incremental, automated, and fair
- Soft liquidation = gentle unwind
- Hard liquidation = emergency mode
- System gives many chances to top up or repay before selling collateral