This mechanism safeguards both the lenders’ funds and the integrity of the protocol. The purpose of liquidation is to ensure that the protocol can recover the full value of the borrowed principal token, so that lenders are returned the exact amount of the principal they deposited. Therefore, the Loan-to-Value (LTV) calculation is done entirely in terms of the principal token (or usd ) for both the borrowed amount and the current value of the position. Borrowers can avoid liquidation by increasing their margin, either:
  • Manually, by adding more funds to the position, or
  • Automatically, by enabling auto-mode, provided their wallet maintains sufficient balance. (in future)
llp-liq

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LTV (Loan-to-Value) & Liquidation Logic

LTV (Loan-to-Value) measures how much the borrower has borrowed compared to the current value of their position (LP + collateral).
  • Formula: LTV = Debt / Position Value 
    Debt = principal × (BLI_now / BLI_entry)

note - everywhere debt is constantly increasing using 
this formula
  • If the LTV gets too high (e.g., 85–90%), it means the borrower’s position is no longer safely over-collateralized and is at risk.

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Partial Liquidation Logic (Individual Risk Control)

Partial liquidation is designed as a borrower-friendly safeguard and a way to safeguard lenders fund from being completely lost , offering a chance to stabilize their position before full liquidation is triggered especially during volatile market conditions.
  • Trigger: When an individual borrower’s LTV crosses the partial threshold (e.g., 85%).
  • Action: A calculated portion of their LP position is closed. The resulting assets are used to repay part of the debt.
  • Goal: Bring the LTV back to a safer range (e.g., down to 75%) without liquidating the entire position.
  • Why: This protects lender funds while giving borrowers a fairer chance to recover compared to immediate full liquidation.

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One-Time Liquidation Logic

  • Partial liquidation is triggered once per liquidation cycle.
  • If the borrower adds more funds and LTV drops below the safe threshold, they become eligible for partial liquidation again in the future.
  • For now, partial liquidation is only applied to blue-chip and mid-cap assets

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Precision-Based Recovery (Not Fixed Slice)

Unlike protocols that liquidate a fixed slice (e.g., 50%), our system calculates the exact value needed to recover 80% of the lender’s principal, based on:
  • The borrower’s leverage
  • Current LTV
  • Position size and debt
Position to liquidate = 0.8 x borrowed amount Note: borrowed amount = debt in calculations.

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State-Based Model (Simple Logic)

For each position, track a flag: has_been_partially_liquidated. Initial State:
  • has_been_partially_liquidated = false

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Example Scenario

Let’s say:
  • partial_threshold = 80 %
  • full_threshold = 90 %
  • safe_threshold = 70 %
  1. Borrower LTV hits 80 %
    • Partial liquidation triggers, flag is set.
  2. Borrower does nothing, LTV reaches 91 %
    • Full liquidation triggers.
  3. If after partial liquidation borrower adds more collateral, LTV drops to 65 %
    • System resets the flag; they get another shot.

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Trigger Rules

ConditionAction
LTV ≥ partial_threshold and has_been_partially_liquidated = false→ Do partial liquidation (e.g. 50 %), then set has_been_partially_liquidated = true
LTV ≥ full_threshold and has_been_partially_liquidated = true→ Fully liquidate the remaining position
LTV < safe_threshold (e.g. user tops up collateral)→ Reset has_been_partially_liquidated = false

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Deleveraging (System-Wide Risk Control)

develarage Workflow we deleverage that is reduce the levergae (lenders fund that the borrower have borrowed)
  • Trigger: Utilization of the lending pool exceeds a critical limit (e.g., 95%) and lenders may not be able to withdraw.
  • Action: A portion of all borrower positions are liquidated proportionally, e.g., user 1 has 200borrowed,user2200 borrowed, user 2 50 → both repay 10% of their debt.
  • Why: Ensures the protocol maintains enough liquidity to satisfy lender withdrawals.

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Debt to liquidate

ΔB = totalBorrowed − (U_target × totalDeposits) ΔB = B − U_target · D amount to liquidate per user For every borrower i with current debt Debtᵢ: 
liquidateᵢ = Debtᵢ × (ΔB / B)
  • Every borrower repays the same percentage of their outstanding debt: percentage_to_repay = ΔB / B
  • After liquidation each borrower’s new debt is Debtᵢ_new = Debtᵢ − liquidateᵢ