Liquidating Positions

The protocol supports liquidation of two types of positions - risky positions and bad debt positions.

Risky Positions

Risky positions include positions that have fallen below the protocol risk threshold but hold enough assets to be liquidated profitably by an external liquidator. Anyone can call the PositionManager.liquidate() function to liquidate a risky position for a small profit.

The process of liquidating a risky position involves paying off the debt for the risky position and receiving it's assets at a discount.

PositionManager.liquidate()

function liquidate(
    address position,
    DebtData[] calldata debtData,
    AssetData[] calldata assetData
) external nonReentrant;

Parameters

Name	Type	Description
position	address	Position address
debtData	DebtData[]	DebtData object for debts to be repaid
assetData	AssetData[]	AssetData object for assets to be seized

The liquidate function accepts two structs to indicate the debt repaid and assets seized:

// Data struct for collateral assets to be received by the liquidator
struct AssetData {
    address asset;
    uint256 amt;
}

// Data struct for position debt to be repaid by the liquidator
struct DebtData {
    uint256 poolId;
    uint256 amt;
}

Bad Debt Positions

Bad debt positions positions include positions that owe more debt to the protocol than the total value of assets in the position. The purpose of liquidating a bad debt position is to ensure the Base Pool is not rendered unusable due to accumulation of bad debt. Accordingly, these positions can only be liquidated by the protocol governance.

The process of liquidating a bad debt position involves socializing the bad debt across all lenders of the Base Pool proportional to their share of deposits. The protocol clears the debt owed by the bad debt position and the loss is realized equitably among all lenders.