> For the complete documentation index, see [llms.txt](https://docs.coupon.finance/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.coupon.finance/mechanism/loan-borrow/liquidation.md). # Liquidation Liquidations are a vital component of all DeFi money markets, ensuring that depositors do not incur bad debt that can affect the health of the whole protocol. Coupon Finance implements partial liquidations that only liquidate until the liquidation target is met, lessening the penalty for borrowers who mismanaged their funds. ## Conditions Liquidations can occur on two occasions. 1. Debt outstanding after coupon expiry 2. LTV exceeding the liquidation threshold ### Debt Outstanding after Coupon Expiry When the coupons expire, and the debt is still unpaid, to make the depositors whole, these loan positions must be liquidated until all the debt is repaid. To avoid such an incident, borrowers must remember to repay their debts before expiry or buy coupons to lengthen the loan duration. ### LTV Exceeding the Liquidation Threshold Coupon Finance assigns a liquidation threshold for each asset pair depending on the volatility. When a loan of an asset is given out, it must be overcollateralized with a different asset, and the LTV must be lower than the liquidation threshold set for that asset pair. Borrowers must repay their debt or add more collateral before the LTV becomes too high to prevent liquidations. | Loan Asset | Collateral Asset | Liquidation Threshold | Liquidation Target | | ---------- | ---------------- | --------------------- | ------------------ | | ETH | wstETH | 95% | 90% | | ETH | USDC | 80% | 70% | | ETH | USDT | 80% | 70% | | ETH | ARB | 80% | 70% | | USDC | wstETH | 80% | 70% | | USDC | USDT | 95% | 90% | | USDC | ARB | 80% | 70% | | ARB | wstETH | 70% | 60% | | ARB | USDC | 70% | 60% | | ARB | USDT | 70% | 60% | ## Liquidation Fee Liquidations on Coupon Finance can be performed permissionlessly and are monetarily incentivized via a liquidation fee. When a liquidation is performed, 2% of the collateral liquidated is collected as a fee, of which 0.5% goes to the protocol. Since a part of the debt is repaid, coupons to secure the loan are unlocked and given to the borrower. The borrower can either use the coupons to borrow again, or sell it to get back to retrieve a part of the interest paid earlier. --- # Agent Instructions This documentation is published with GitBook. GitBook is the documentation platform designed so that both humans and AI agents can read, navigate, and reason over technical content effectively. Learn more at gitbook.com. ## Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter, and the optional `goal` query parameter: ``` GET https://docs.coupon.finance/mechanism/loan-borrow/liquidation.md?ask=&goal= ``` `ask` is the immediate question: it should be specific, self-contained, and written in natural language. `goal` is optional and describes the broader end goal you are ultimately trying to accomplish on behalf of the user. GitBook uses it to tailor the answer towards what is most useful for that goal. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.