Liquidation

What it means to be liquidated, the number that tells you how close you are, and what actually happens if the price moves against you.

When you borrow against collateral, the lending market needs to know the loan will still be covered if the collateral loses value. So it sets a limit: your debt may not exceed a set fraction of what your collateral is worth. Cross that limit and anybody may repay part of your debt in exchange for part of your collateral, at a discount. That is a liquidation, and it happens without warning and without asking you.

Nothing about this is unique to DeVOLT. It is how every lending market of this kind works, and it is the risk you take on in exchange for the leverage.

The numbers that describe where you are

LLTV: The limit set by the market: the fraction of your collateral value your debt may reach before liquidation is allowed. It is set by the market, not by DeVOLT, and it is on every row of the table.
health factor: How far you are from that limit, as a single number. Above one you are safe; at one you are at the boundary; below one you can be liquidated. It is your collateral value multiplied by the LLTV, divided by your debt.
liquidation price: The collateral price at which your health factor would reach the boundary. Easier to act on than a ratio, because it is a price you can watch.
leverage: How large your position is relative to your own money. Higher leverage means a smaller price move is enough to reach the boundary.

The app reads the health factor in bands. At 1.5 or above a position is comfortable. Between 1.2 and 1.5 it is worth watching. Below 1.2 it is in danger, and one is the boundary itself. These are the app’s own judgement about how much room is enough, not the venue’s rule: the venue liquidates at one, whatever the app shows.

The health factor moves for reasons other than price. Your collateral usually earns yield, which pushes it up over time; interest accrues on your debt, which pulls it down. A position left alone does not stay still.

Why leverage and safety are the same dial

A modest leverage

a smaller debt against the same collateral, so the boundary sits further away

A high leverage

a larger debt against the same collateral, so the boundary sits close in

liquidation

The fall stops short of the line, and the position carries on.

The same fall reaches the line, and the position can be liquidated.

The same fall in the collateral price, drawn at the same length on both panels, against the same scale. Only the boundary moves, because only the size of the debt changed. The picture carries no prices and no ratios: it is a relationship rather than a market, and the numbers that would make it yours are the ones in the panel when you size a position.

Higher leverage does not only multiply your return. It shrinks the price move you can survive, because your debt is larger relative to the same collateral. Every step up the slider buys return by spending room, and the panel shows both sides of that trade, the return and the health factor you would be opening at, before you sign.

What you can do about it

add collateral: Raises the health factor without changing the debt.
reduce leverage: Sells part of the collateral to repay part of the debt. The Managing a position chapter covers how it runs.
close: Unwinds the whole position and returns what is left after the debt is repaid.
repay: Pays some of the debt back, which raises the health factor.

What DeVOLT does not do

DeVOLT does not liquidate you, does not close your position for you, and will not act for you if the price moves. It does not take custody of your funds. That is the point of a non-custodial product, and it is also its limitation: DeVOLT sends no alerts, so nobody is watching the position for you, and the health factor on your positions page is where you look. The permissions you grant when you open stay in place until you revoke them, and the Security chapter says who can change the contract they name.