Liquidation (Lending protocols exclusive)

Liquidation Alert (Severity: Medium)

Liquidations in a lending protocol can serve as a crucial notification for users, as they indicate that a borrower's position has been closed by the protocol due to insufficient collateral. In DeFi lending platforms, users are required to over-collateralize their loans. If the value of the collateral falls below a certain threshold, the protocol might automatically liquidate the assets to ensure the loan is repaid.

Such liquidations are designed to protect lenders by ensuring the loaned amount is recouped. However, for borrowers, it can result in the loss of a significant portion of their collateral, and additional fees or penalties might be incurred.

Receiving a liquidation alert empowers users by giving them timely information on the health of their loans. This allows them to take preventative measures, such as adding more collateral or repaying a portion of their loan, to avoid potential losses and maintain a healthy position within the lending protocol.