Native liquidations

An active leveraged position whose health score drops below 1 is liquidatable directly on the lending market through the standard liquidation flow. Nothing protocol-specific intermediates: the liquidator repays the position’s debt and seizes tokenised asset collateral shares at a discount, atomically, first come first served.

The flow

The canonical sequence for a liquidator:

1. Approve the debt asset to the debt vault, funding the repay.
2. Enable the controller. Liquidation transfers the violator’s debt to the liquidator, so the liquidator must accept the debt vault as controller for their account.
3. Enable the collateral. The seized shares must count toward the liquidator’s own health check while they momentarily hold the debt.
4. Execute the batch: liquidate(violator, collateralVault, repay, minYield) followed by repay, seizing collateral and clearing the assumed debt in one transaction, exiting with collateral only.

Steps 2 and 3 are one-time setup per liquidator account.

Profit and risk

The liquidator’s profit is the lending market’s dynamic liquidation discount, which scales with how unhealthy the position is (up to the market’s cap), realised as an excess of seized collateral value over the repay amount. The profit is unrealised until the shares are exited: unlike the auction path, settlement risk is zero (the transaction is atomic) but the liquidator bears the tokenised asset exit risk, since the seized shares redeem through the asset’s own settlement process.

Who can participate

Native liquidation is permissionless for compliant accounts: the vault hook authorizes liquidate against a valid Keyring credential for the market’s policy. The auction path checks the same kind of credential when a bid is placed, but there the protocol’s own liquidator contract executes the liquidation. One credential covers the whole trade, since exiting the seized shares later (withdrawals and redemptions) is checked against the same credential; on a permissioned market the liquidator must additionally be whitelisted by the issuer to hold and redeem the underlying asset. The app verifies eligibility up front, before any transaction is signed.