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Trader Joe
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Marketing
Security & Contracts
Risk Management (Liquidations)
What is Liquidation and how to manage your portfolio to avoid liquidation
When Borrowing tokens, it's important to keep sufficient collateral so that you do not get liquidated.
What is 'Liquidation'
- Liquidation is the process of selling collateral assets to cover the debt.
- This process is automated by a smart contract.
- This can happen if the market has volatile price movements, shifting a portfolio position into 'debt'
To avoid Liquidation
- Add more of the supplied collateral, to improve the collateralization ratio.
- Or, pay back part of the existing debt.
Users of Banker Joe should maintain proper risk management with their portfolio. Maintain a large buffer between your collateral and borrowed debt to reduce risk of liquidation.
Liquidation Process in Detail
- Liquidations can happen if market has sudden price movements and cause
collateral value < borrowing value. - It can also happen, after time, if your
total deposit APY < total borrow APY. This means that your borrowing interest rate is greater than your deposit APY. - You can monitor your
Net APYandborrow limit usedto avoid liquidations.- Positive
Net APYmeans that your deposit interest will pay for your loan interest. - A lower
borrow limit usedwill present less liquidation risk. - If
borrow limit usedincreases and becomes too high, you may repay some borrowed tokens, or add more collateral.
Last modified 1mo ago
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