Liquidations
What happens when a position breaches its threshold.
ts
healthFactor = (collateralValue × liquidationLtv) / debtValue
// below 1.0 the position is liquidatableThe hard problem
A liquidator needs to sell collateral quickly. If the collateral's value derives from tokenized equities and the equity market is closed, the liquidator's exit is either the secondary market for the claim token or a redemption that takes time and pays a fee.
Mitigations under consideration
- Lower LTV during closed-market hours
- Redemption-based liquidation with a defined settlement window
- Liquidation only against the crypto legs of the basket