# Liquidations

Liquidations occur when an account's collateral value decreases or the borrowed amount increases in value relative to the collateral. They take place whenever the loan-to-value (LTV) ratio meets or exceeds the current liquidation threshold. 

**Why do liquidations happen?** 

They are necessary to keep the protocol solvent and healthy, allowing Root Finance to mitigate uncollectible debts by settling loans exceeding the required collateral factor. 

Differences between current **LTV Ratio**, **MAX LTV**, and **Liquidation Threshold:**

* Current **LTV Ratio**: Calculated by dividing the total borrowed amount by the total collateral in USD.

`LTV Ratio = Loan value /  Collateral value ∗ 100`

* **MAX LTV**: Determines the maximum amount you can borrow based on your collateral in USD.
* **Liquidation Threshold**: The LTV Ratio at which your position is flagged for liquidation. To prevent this, maintain your current LTV Ratio below the threshold by repaying loans or adding more collateral. On Root the Liquidation Threshold is the Maximum LTV + 5%.

**if LTV Ratio ≥ Liquidation Threshold** <mark style="color:red;">the position will be liquidated</mark>&#x20;

**if LTV Ratio < Liquidation Threshold** <mark style="color:green;">the position is safe, no liquidation will occur</mark>

What happens during a liquidation?&#x20;

During a liquidation, the LIQUIDATION mechanism intervenes to restore the loan to a healthy level, allowing liquidation of up to 40% of the **Loan Value**.

`Liquidation Value = 0, 40 ∗ Loan Value`

The liquidator receives an incentive, which is deducted from the amount borrowed by the user being liquidated. The liquidation amount is calculated based on the current market price, with an additional 8% liquidation fee.

`Liquidation Bonus = 0, 08 ∗ Liquidation Value`<br>

**KEY CONSIDERATIONS FOR THE LIQUIDATION MECHANISM** ⚠️

* The liquidation bot leverages on-chain liquidity from decentralized exchanges (DEXs). It’s important to note that when repaying debt, the swaps between the assets involved may experience slippage or price impact, especially if the liquidation size is significant and the liquidity of the liquidity pool (LP) is insufficient.
* In the event of slippage or price impact during liquidation, the actual outcome of the swap will be applied to the borrower’s debt. For example, if a liquidation experiences a 2% price impact due to low liquidity, the debt reduction will not be the full 40%, but rather 38%. **As such, the liquidation outcome is never guaranteed, meaning users should be cautious about allowing their positions to reach liquidation levels.**
* Overall, the effectiveness of the liquidation bot is directly influenced by the available market liquidity on Radix. Therefore, keeping a close watch on your position and the overall ecosystem liquidity is strongly recommended.


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