Liquidation

Liquidation is determined by borrow collateral factors (used to determine initial borrowing capacity as well).

When an account’s borrow balance exceeds the limits set by collateral factors, it is eligible for liquidation. A liquidator (a bot, contract, or user) can call the liquidateBorrow function, which relinquishes ownership of the accounts collateral, and returns the value of the collateral, minus a penalty (liquidation factor), to the user in the base asset.

In Sonne Finance, the amount of a position that can be liquidated at one time is set at 50% (ie. the Close Factor). This means that only part of the borrower's debt is repaid and not all of it.

Each absorption is paid for by the protocol’s reserves of the base asset. In return, the protocol receives the collateral assets. If the remaining reserves are less than the target, liquidators are able to buy the collateral at a discount using the base asset, which increases the protocol’s base asset reserves.