✅ Understand DeFi Liquidations
Master liquidation mechanics, risk calculation, and protection strategies
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0 / 5 completed✨ Key Takeaways
Protocol Safety Mechanism
Liquidations protect lending protocols from insolvency by automatically closing undercollateralized positions before debt exceeds collateral value. They're a necessary feature, not a punishment.
Health Factor Is Critical
Your health factor (HF) is your most important metric. HF > 1.0 means you're safe, HF < 1.0 means you're liquidatable. Monitor it constantly and maintain significant buffer room (HF > 1.5).
Liquidator Competition
Liquidation bots compete 24/7 to execute liquidations for profit (earning the 5-15% penalty). This creates an efficient market where unhealthy positions are closed almost instantly after becoming liquidatable.
Prevention Over Reaction
The best defense is proactive risk management: maintain low LTV ratios, set up monitoring alerts, keep emergency funds ready, and use automation tools. Don't wait until HF < 1.2 to take action.
Remember
Liquidations are not personal attacks—they're automated mechanisms that keep DeFi protocols solvent and lenders protected. Understanding the math behind health factors and liquidation prices empowers you to borrow safely and manage risk effectively.