> For the complete documentation index, see [llms.txt](https://docs.tydro.com/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.tydro.com/v.-risk/risk-types-and-overview/liquidation-risk.md). # Liquidation Risk A position that falls below its liquidation threshold can lose collateral. This page describes how that happens and what can help prevent it ### What liquidation costs When the health factor reaches 1 or below, a liquidator repays part of the debt and takes an equal value of collateral, plus the liquidation bonus. The bonus is a real cost to the borrower. The borrowed assets are kept, but the collateral lost is worth more than the debt that was repaid. See [Liquidations](/v.-risk/risk-types-and-overview/liquidation-risk.md). {% hint style="warning" %} Liquidation is automatic and permissionless. It happens without notice and without the borrower's involvement the moment a position becomes eligible. {% endhint %} ### Acting in time may not be possible Avoiding liquidation means adding collateral or repaying debt before the health factor reaches the threshold. A fast market may not leave the chance. Prices can move faster than a borrower can react, transactions can be delayed when the network is congested, and a position can cross the threshold while the borrower is still preparing to act. Tydro runs on Ink. If the network or its sequencer is degraded or unavailable, a transaction to protect a position may not go through, or the transaction may land after another transaction with a higher priority fee within a given flashblock while prices continue to move and liquidation occurs. Tydro Governance can implement a 2 hour liquidation grace period in extreme circumstances. This feature has only been used once in a precautionary measure after migrating to Chainlink oracles in May 2025. ### Liquidation may not clear the debt In extreme volatility, collateral can fall below the value of the debt before a position can be fully liquidated. The position can then be left with bad debt that liquidation does not cover. In the event of bad debt, losses may be shared amongst lenders or tranche holders. --- # Agent Instructions This documentation is published with GitBook. GitBook is the documentation platform designed so that both humans and AI agents can read, navigate, and reason over technical content effectively. Learn more at gitbook.com. ## Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter, and the optional `goal` query parameter: ``` GET https://docs.tydro.com/v.-risk/risk-types-and-overview/liquidation-risk.md?ask=&goal= ``` `ask` is the immediate question: it should be specific, self-contained, and written in natural language. `goal` is optional and describes the broader end goal you are ultimately trying to accomplish on behalf of the user. GitBook uses it to tailor the answer towards what is most useful for that goal. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.