2.3.7. Liquidation

A borrowing account becomes insolvent when the Borrow Balance exceeds the amount permitted by the collateral factor. When an account becomes insolvent, other users can repay a portion of its outstanding borrow in exchange for a portion of its collateral, with a liquidation incentive currently set at 20% (subject to change through the TrustNFT governance system). The liquidation incentive means that liquidators receive the borrower’s collateral at a 20% discount from the market price. The liquidation of an account is to be avoided because the user will lose some of their collateral.