Liquidations

Liquidation Incentives

Extra collateral is provided to liquidators as a motivation to carry out liquidations and maintain the protocol's solvency. A part of this collateral is allocated to the sToken reserves in accordance with the protocol's seize share, mitigating the possibility of insolvency due to a chain reaction of liquidations. The Liquidation Incentive amounts to 10% of an under-collateralized account's outstanding debt, with 30% of that sum being returned to the protocol reserves.

The liquidation incentives will steadily increase over time to entice engagement, beginning at 10% plus a premium to allow the discount to rise as a function of how under-water a position is. The market forces will dictate how high it needs to be.