Liquidation

Nearly every decentralized lending protocol, including the Stacking Salmon Protocol, relies on timely and swift liquidations to ensure the stability of loans. If a borrower's loan is not sufficiently collateralized, relative to the borrowed amount, a protocol typically sells some of the underlying collateral and repays the loan.

Liquidation Incentive

Stacking Salmon offers a liquidation incentive to liquidators in exchange for liquidating, or buying out, at-risk loans. Anyone can be liquidator as long as they provide the necessary tokens to repay the loan. In return, they receive a percentage of the borrowed amount, deducted from the borrower's initial collateral.

Borrowers

Borrowers should periodically monitor their Current Leverage and Liquidation Prices for outstanding leveraged positions to ensure they are sufficiently collateralized.

Liquidation doesn’t necessarily mean losing 100% of initial collateral. When a borrower’s position is liquidated, the borrower pays a liquidation incentive on the borrowed amount, which is deducted from the initial collateral. After liquidation, the borrower keeps any remaining collateral. This process helps to ensure borrowers keep their positions sufficiently collateralized to avoid penalization.

Avoiding Liquidation

Borrowers may choose from a number of strategies to avoid liquidation:

• Choose lending pools with more stability. Token pairs with higher volatility have a greater chance of going above or below the range of Liquidation Prices.

• Choose a smaller amount of leverage, with a wider range of Liquidation Prices, when you open a new leveraged position.

• Monitor your leveraged positions, especially during periods of high volatility, and decide whether you want to deleverage.

Finally, you may choose to supply tokens instead of borrowing. Supplied tokens have no risk of impermanent loss or liquidation. You can supply tokens in the Lend tab for any lending pool.