Liquidations
Partial by design, paused while the market is closed, and what happens when the collateral is not enough.
A position becomes liquidatable when its borrowed value exceeds its collateral value times the market's liquidation threshold.
Partial, not total
A liquidator does not have to repay the whole debt. They choose how many borrow shares to repay, and seize a proportional fraction of every token the position holds, plus the market's bonus.
This matters for borrowers. A position 1% past the threshold does not get closed entirely; it gets pushed back to health by whatever the liquidator chose to repay. The alternative — seize everything on any breach — turns a small adverse move into a total loss.
The bonus
The liquidator receives the seized collateral at a discount, set per market:
| Market | Bonus |
|---|---|
| NVDA / USDG | 8% |
| SPY / USDG | 6% |
| WETH / USDG | 5% |
A share of that bonus can be directed to the protocol rather than the liquidator
(liquidationProtocolShare, currently 0% on testnet).
The bonus is not arbitrary. It is the payment for the liquidator's capital, gas and price risk — and a liquidator who is not paid enough stops showing up, which is precisely when bad debt accumulates. Raising the protocol's share reduces what liquidators earn, and that trade is the one being made.
Liquidations pause while the market is closed
This is the part that differs from a market built for assets that trade continuously.
When the equity market is closed, the last price stands and liquidations are blocked, along with borrowing. Withdrawals stay open.
The reason: a price that cannot move is not a price a position should be closed on. Liquidating against Friday's close on a Sunday afternoon punishes a borrower for a move the market has not had the chance to make — and rewards a liquidator for information nobody has.
The consequence, stated plainly: a position can be deeply underwater when the market reopens, and several positions may be liquidatable at once in the first minutes of a session. That is the cost of the choice, and it is why Stock Token markets carry lower LTVs than WETH.
See market hours.
Bad debt
If the collateral seized is worth less than the debt repaid — a gap large enough that even a full liquidation cannot cover it — the shortfall is bad debt. It is recorded against the market and absorbed by that market's lenders.
Isolation is what bounds it: bad debt in NVDA/USDG cannot reach anyone who only supplied to SPY/USDG.
Bad debt events are emitted on-chain and indexed, so the running total per market is readable rather than something you have to infer.