Liquidation

Forced closure of an undercollateralized borrowing position. Liquidators repay part or all of the debt, often only part, and receive the borrower's collateral at a discount (the liquidation bonus), so the borrower loses collateral worth more than the debt repaid. DeFi liquidations are triggered by liquidators, usually bots, under rules the smart contract enforces, with no discretion over when a position qualifies. The protocol does not wait for a human margin call process. In volatile markets, cascading liquidations across correlated positions can accelerate price moves dramatically.