5. Liquidations
When the value of your collateral falls too close to—or below—the amount you’ve borrowed plus interest, the loan becomes unsafe for the pool. At that point Flow automatically “liquidates” the position: it sells just enough of your collateral to repay the debt and a small fee, then returns any leftovers to you. Liquidations protect lenders and keep the pool solvent without needing human intervention.
Why They Happen
Flow uses a Health Score to measure how safe a loan is:
Health Score = (Collateral Value × Collateral Factor) ÷ (Borrowed Value + Accrued Interest)
>1.0 → Safe You’re above the liquidation line.
≤1.0→ At Risk Flow’s bot auto-liquidates: it repays the debt and sells enough collateral to cover it.
What the Flow Liquidator bot does
Automated bot repays the entire under‑collateralised debt (principal + accrued interest) and triggers a 15 % liquidation fee.
The protocol immediately sells enough collateral on‑chain to cover the debt plus the 15 % liquidation fee.
Any collateral left after paying debt and fee is automatically returned to the borrower.
What It Means for You
Keep an eye on your Liquidation price and Health Score. Topping up collateral pushes it higher; when you no longer need the loan, repay the full amount to close it.
A health buffer of 1.5 – 2.0 is usually considered comfortable.
ADA / SNEK Loan liquidation walk-through
(min LTV 48 %, liquidation 60 %)
1 · Open the loan
Borrow 1 000 ADA. Post ≈ 416 700 SNEK (worth 2 083 ADA) so your starting LTV is 48 %.
2 · Interest ticks up
Suppose the fixed APR on this loan is 5 %. After 180 days, accrued interest ≈ 25 ADA. Your borrow balance is now 1 025 ADA.
3 · LTV rises even if price doesn’t
New LTV = 1 025 / 2 083 ≈ 49.2 %—no price move needed.
4 · Price move to liquidation
Liquidation fires when LTV hits 60 %. With 1 025 ADA owed, that happens if your SNEK collateral value falls to 1 708 ADA. That’s a ~18 % price drop from the day-one level (slightly less than the 20 % drop if no interest had accrued).
5 · What the protocol does
The bot repays 1 025 ADA (principal + interest), adds a 15 % fee (≈ 154 ADA worth of SNEK), sells just that amount of SNEK, and returns any leftover tokens to you.
Oracle & Price-Feed Basics
Flow runs its own oracle service that pings several public feeds, most notably DexHunter and Charli3 (C3) API, every few seconds. Having more than one feed gives us redundancy: if one API lags or spikes, the others keep the price stream healthy. The oracle only stores the most recent quote for each token and publishes it on-chain when a liquidation check needs a fresh price.
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