Liquidation Process

In BitFire, liquidation is a safety mechanism designed to protect the protocol and ensure all loans remain fully collateralized. If your BTC collateral falls below the Liquidation Threshold, your position may be partially or fully liquidated.

How it works:

• The protocol continuously monitors your collateral value and your borrowed position relative to the liquidation threshold.

• When the value of your BTC drops such that your health factor falls below 1 (i.e., below the liquidation threshold), your account becomes eligible for liquidation.

• Liquidators can repay a portion of your debt in exchange for a proportional amount of your BTC collateral, often with a small bonus as an incentive.

• Partial liquidation restores your account to a safe level, while full liquidation occurs only if the position cannot be stabilized.

• Users can avoid liquidation by maintaining sufficient collateral or repaying part of their debt before reaching the threshold.

This liquidation process ensures the safety and solvency of the BitFire protocol, protecting both borrowers and liquidity providers while incentivizing responsible collateral management.