Write to Solve Problems The best products solve problems. The best content solves problems. I'm always trying to understand YOUR problems with DeFi. I've actually interviewed 15+ people to find out their DeFi pain points. That gave me 30+ topic ideas.

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How does it work?

Just like a cash loan, you deposit a token like ETH(collateral) and borrow a fraction of the the deposited value in the form of stable coin or other tokens. this is a over collateralized loan because it is good for as long as the collateral is worth more than the amount borrowed. if the value of the deposited loan goes below a certain level and the loan is not paid back then the account will be liquidated. meaning collateral will be sold to cover the outstanding debt.

liquidation level- collateral ratio or collateral factor determines how much you can borrow

— DeFi lending protocols offer investors and traders a brand new way to access loans (outside of traditional finance) while offering lenders a way to earn more on their crypto holdings.

— A borrower has to put up a crypto asset as collateral for the loan – but since that collateral might change in value (thanks crypto volatility) borrowers face an increased chance of their loan going into liquidation, in which case they lose this collateral.

— This leads to unique risks for the borrower in DeFi, as well as for the space as a whole. Here, we tackle DeFi liquidation so you know how to manage the risks yourself.

DeFi Liquidation

In traditional finance, liquidation refers to when a company or group needs to sell some of its assets at a discount to cover a debt. DeFi liquidations are similar, where users take out debt from a protocol and provide crypto assets as collateral to back the debt

Borrower having their collateral sold

However, if the debt value starts getting close to eclipsing the collateral's value, the smart contract will automatically allow third parties to bid on the collateral to cover the debt that is outstanding to the DeFi protocol.

Thus, DeFi liquidation is the process by which a smart contract sells crypto assets to cover the debt.

Liquidation

users can