How do liquidations work in Chainflip?
When your loan becomes undercollateralised:
- The protocol initiates liquidation DCA swaps, which convert part of your collateral into the loan asset (e.g., USDC or USDT) one chunk at a time
- The proceeds are used to repay part of your loan
- If the liquidation restores your LTV to a healthy level, the process automatically stops
- Unsold collateral (minus fees) is returned to your collateral account
Chainflip supports both partial and full liquidations depending on LTV and market volatility.
What does over-collateralised mean?
Chainflip Lending is an over-collateralised lending system, you must deposit more in collateral than the value of your loan.
This ensures:
- Loans remain safely backed
- The protocol can recover funds through liquidation
- Users and lending pools are protected from insolvency
What is Loan-to-Value (LTV)?
LTV measures how much you’ve borrowed relative to your collateral’s USD value.
Example: Borrow 20,000 USDT with $100,000 BTC collateral → LTV = 20%
If LTV exceeds the protocol’s liquidation threshold, your position may be partially liquidated.
When does liquidation happen?
Liquidation occurs automatically when LTV exceeds the threshold, which can happen due to:
- A drop in collateral price (BTC, ETH, SOL, etc.)
- An increase in the borrowed asset’s price
- Accrued interest increasing debt
Before liquidation, Chainflip attempts auto top-up using your primary collateral asset.
Can I avoid liquidation?
Yes. You can:
- Enable auto top-up (uses free balance of your primary collateral asset)
- Manually add more collateral at any time
- Repay part of your loan
- Monitor LTV in the app (with warnings when LTV is at risk)
Liquidation only occurs if no corrective action is taken.
What happens after liquidation?
After liquidation:
- Liquidated value repays part (or all) of your loan
- A small liquidation fee (e.g., 5 bps) on the liquidated amount is deducted
- Remaining collateral is returned
- You retain control of the loan if it wasn’t fully repaid
Chainflip’s liquidation system is automated, incremental, and designed to minimise losses.
What is a soft liquidation?
Soft liquidation is triggered when collateralisation drops below the soft threshold.
The protocol submits small DCA-style liquidation orders with a minimum price slightly below the oracle value using Live Price Protection (LPP). LPs compete to fill these orders at near-market rates.
Liquidation continues until:
- the loan becomes healthy
- the loan is fully repaid
- collateral is exhausted
Borrowers may also manually trigger soft liquidation to unwind a position and reclaim remaining collateral.
What is a hard liquidation?
Hard liquidation occurs when LTV becomes dangerously high, meaning soft liquidation was not enough.
In a hard liquidation:
- Trigger threshold is higher
- Live price protection widens to 5%
- Larger chunks of collateral may be sold
- Execution prioritises speed
- Still abortable if LTV improves
Hard liquidation is designed for extreme market conditions.