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.
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:
This ensures a diversified portfolio reflects an appropriate combined risk level.
Health Factor (HF)
Your position safety is measured by Health Factor:
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:
Up to 50% of the borrower's debt is repaid by a liquidator.
The liquidator receives a 15% liquidation incentive (bonus collateral).
Remaining collateral is returned to the borrower.
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.
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