# Collateral & Liquidation

When borrowing on LayerBank, the value of your collateral determines how much you can borrow and whether your position is safe.\
If your **borrowed value** grows too close to your collateral value (due to price drops or interest accrual), your position becomes at risk of **liquidation**.

***

### **Max LTV (Loan-to-Value)**

**Max LTV** is the maximum percentage of your collateral’s value that can be borrowed.

$$
Max\ LTV = \frac{\text{Borrow Limit}}{\text{Collateral Value}}
$$

**Example:**\
If the Max LTV for USDC is **80%**, and you supply **100 USDC**, you can borrow up to **80 USDC**.

***

### **Borrow Limit Calculation**

If you have multiple collaterals, your total **Borrow Limit** is determined by the **weighted average** of all supplied assets and their Max LTVs:

$$
Borrow\ Limit = \sum\_i (Collateral\_i \times Price\_i \times MaxLTV\_i)
$$

This ensures a diversified portfolio reflects an appropriate combined risk level.

***

### **Health Factor (HF)**

Your position safety is measured by **Health Factor**:

$$
HF = \frac{\text{Borrow Limit}}{\text{Borrowed Value}}
$$

* **HF > 1.0:** Safe (below max LTV).
* **HF = 1.0:** At risk (exactly at max LTV).
* **HF < 1.0:** Liquidation can be triggered.

***

### **Liquidation Process**

When HF < 1.0 (loan exceeds allowed LTV), a partial liquidation occurs:

1. Up to 50% of the borrower's debt is repaid by a liquidator.
2. The liquidator receives a 15% liquidation incentive (bonus collateral).
3. Remaining collateral is returned to the borrower.
4. Health Factor is restored above 1.0, making the position safe again.

***

### **Key Points**

* Liquidation is **partial** — only enough collateral is sold to bring HF back above 1.0.
* The liquidation incentive rewards third-party liquidators and keeps the protocol solvent.
* Maintaining a safe HF (e.g., >1.2) is recommended to avoid liquidation during volatile markets.

{% hint style="info" %}
Liquidations are executed automatically. In such events, LayerBank closes the borrower's position, reallocates the collateral value to the lending pool, and returns any residual assets to the borrower.
{% endhint %}


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