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Liquidation

Liquidation is a process within the protocol that is supposed to ensure the protocol's safety by making sure that it is always sufficiently over-collateralized.
When the collateral ratio of a loan goes under that allowed by the protocol, a user's position is eligible for liquidation. This means that anyone can purchase that user's insolvent collateral for a discount. Thus, the user retains their RUSD loan but has lost a portion of their collateral.
A discount is given to the buyer of the collateral (also known as the liquidator) as an incentive, increasing the likelihood of demand for liquidations, thus decreasing the overall protocol risk. To better understand this, consider the following scenario: there is currently a market crash, and many users' positions are flagged for liquidation as cryptocurrencies and tokens plummet in USD price. For a liquidator, buying a user's collateral at face value exposes them to market risk. In other words, the price of the purchased collateral may have decreased between the time the liquidator purchased the collateral asset and the time they sold the collateral asset. Therefore, the protocol has to give liquidators a discount to compensate them for this risk. Because liquidators' capital is scarce, money markets have to compete over their capital so that the protocols remain solvent. These are all reasons why the liquidation discount should be relatively high.
Why not give a massive discount? For one, a huge discount gives a perverse incentive to manipulate the market to snap up collateral that is falsely flagged for liquidation. Also, large discounts hurt users that become liquidated, leaving them with less collateral after liquidation. Therefore, the high fee disincentivizes users from taking high, but not excessive, leverage.
Therefore, a balance must be maintained.

Sarah owns 10,000 USD worth of NEAR. Now, Sarah knows she can improve her capital efficiency and put her NEAR to use if she mints RUSD against her collateral, so she does just that. Sarah wants to mint RUSD at a Loan-to-Value ratio of 50%, giving her collateral (NEAR) plenty of room to fluctuate without making her eligible for liquidation and allowing her to take 5,000 RUSD as a loan. After the 0.3% borrow fee, Sarah has 4,985 RUSD.
According to the maximum Loan-to-Value ratio set by the protocol (85%), her collateral will be eligible for liquidation when the market value of her NEAR collateral goes under β‰ˆ 5,882 USD, a β‰ˆ 41.1% decrease in NEAR's market value (assuming her collateral position remains unchanged and she doesn't pay off any debt).
Sam is a smart guy. He has a bot that is watching Sarah's collateralized debt position (CDP) and is ready to partially liquidate it if Sarah's liquidation price is breached.
Sadly for Sarah, the value of her NEAR position drops below 5,882 USD and her collateral is no longer sufficient to cover her position. Sam's bot executes and liquidates Sarah's position by paying off her outstanding debt with 2,531 RUSD in exchange for β‰ˆ 2,721 USD worth of her NEAR collateral (for a 7.5% discount, as given by the protocol). At this moment, Sarah has lost about half of her NEAR collateral position; however, she still has her RUSD.

Currently, the liquidation discount is 7.5% across all tokens. 10% of the liquidation discount is taken as protocol revenue. The liquidator receives the rest.
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What are Liquidations?
Example of a Liquidation
Liquidation Discount