# Liquidation System

When the value of the assets borrowed exceeds a certain proportion of the borrowing capacity, the collateral may face liquidation.

**Liquidation Threshold.** It represents the maximum margin value of the collateral. For a specific collateral, the Liquidation Threshold is usually greater than the Collateral Factor. 

The liquidation mechanism will be triggered when the weighted debt's total value exceeds the collateral's maximum margin value.

**Parameters on Aptos Testnet are as follows.**

| Asset                 | USDC | USDT | APT  | BTC  | ETH  |
| --------------------- | ---- | ---- | ---- | ---- | ---- |
| Collateral Factor     | 0.85 | 0.85 | 0.6  | 0.7  | 0.8  |
| Debt Factor           | 1.05 | 1.05 | 1.25 | 1.15 | 1.15 |
| Liquidation Threshold | 0.9  | 0.9  | 0.8  | 0.8  | 0.9  |
| Liquidation Penalty   | 0.05 | 0.05 | 0.12 | 0.05 | 0.05 |

**Patronus optimized liquidation mechanism**

Most lending protocols do not usually set a **liquidation ratio** when dealing with the positions under insufficient collateralized status. The corresponding collateral will be sold at a discount to pay off all debt, and it seems slightly simple and rough.

**Patronus would dynamically calculate a reasonable liquidation ratio for each account**, avoiding unnecessary and unexpected seizure of collateral assets.

Let us assume that there is a pending liquidation **account A**, whose current **weighted debt value** over the **weighted collateral value** is **n:1**.

The optimized liquidation mechanism will limit the range of debt amounts allowed to be liquidated, and the above ratio will correspond to a range of 1 : 1.1 to 1 : 1.

At the moment the liquidation is completed, we can be sure that A is no longer in a pending liquidation. However, if extreme volatile market conditions persist, the liquidation mechanism will still be triggered and operate automatically.

However, it is important to note that this optimized liquidation mechanism will only operate while the account is still **over-collateralized**, and once the account becomes **insolvent**, the system will allow the liquidator to liquidate the total debt of the account to be liquidated.

We define the conditions for determining an insolvent account as follows.

The sum of the discounted value of the collateral < The actual value of the debt


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