> ## Documentation Index
> Fetch the complete documentation index at: https://docs.vanna.finance/llms.txt
> Use this file to discover all available pages before exploring further.

# Liquidation

> What liquidation is, when it happens, and how to avoid it.

## What liquidation is

Liquidation triggers when your Health Factor reaches **1.1x** - the point at which your collateral is no longer considered sufficient to safely back your outstanding debt.

When liquidation runs, the protocol does two things in order:

1. **Repays all your debt.** For every token you have borrowed, the full outstanding balance is cleared. The borrowed tokens held in your Margin Account are transferred back to the lending pools.
2. **Returns remaining collateral to your wallet.** Whatever direct token balances (XLM, USDC) are still in your Margin Account after debt repayment are sent to your wallet.

All borrowed tokens are cleared in a single transaction. There is no partial liquidation.

Your Margin Account is not closed or deactivated by liquidation - it remains open but empty.

## When your account becomes eligible

Your account becomes eligible for liquidation the moment your Health Factor reaches **1.1x**. This can happen because:

* **Collateral price drops.** The assets you deposited lose value, reducing your collateral relative to your debt.
* **Borrowed asset price rises.** The token you borrowed becomes more expensive, making your debt worth more in USD terms.
* **Interest accrues.** Your debt grows over time as interest accumulates, gradually pushing your Health Factor down.

All three scenarios produce the same result: your collateral-to-debt ratio falls to 1.1x and the account is eligible for liquidation.

See [Health Factor](/guides/margin/health-factor) for how your current ratio is calculated and what affects it.

## Who can trigger it

Liquidation requires your authorization. The contract calls `require_auth()` on your wallet address before doing anything - the transaction must carry your signature. This means liquidation is something you initiate on your own unhealthy account, not something an external party can force on you without your involvement.

## What happens step by step

<Steps>
  <Step title="Your Health Factor reaches 1.1x">
    Due to collateral price movement, debt price movement, or interest accrual, your Health Factor drops to 1.1x. Your account is now eligible for liquidation.
  </Step>

  <Step title="You initiate liquidation">
    You trigger liquidation on your Margin Account. The protocol confirms your account is unhealthy before proceeding - if your Health Factor is above 1.1x at the moment of execution, the transaction reverts and nothing happens.
  </Step>

  <Step title="All debt is repaid">
    For every token you have borrowed (XLM, USDC), the protocol reads your full outstanding balance including accrued interest and clears it. The borrowed tokens held in your Margin Account are transferred back to the respective lending pools.
  </Step>

  <Step title="Remaining collateral goes to your wallet">
    After debt is cleared, any remaining direct token balances (XLM, USDC) in your Margin Account are transferred to your wallet. If you held Blend yield positions or Aquarius LP positions as collateral, those tracking records are zeroed in your account but the underlying positions are not automatically unwound from their protocols.
  </Step>
</Steps>

## What you recover

After liquidation:

* Your full outstanding debt is cleared.
* Any direct token balances (XLM, USDC) remaining in your Margin Account after debt repayment are sent to your wallet.
* There is no liquidation fee - the protocol repays your exact debt balance and returns the full remainder to you.

The amount you recover depends on how far your Health Factor had dropped before liquidation ran. If it was right at 1.1x, you recover approximately 10% of your debt value as a surplus (collateral was 1.1x debt, so 0.1x remains after repaying 1x). If it had dropped further before you acted, the recoverable amount is smaller.

## Settle account - the voluntary path out

If your Health Factor is dropping and you want to exit cleanly before reaching 1.1x, you can use **settle account** instead of waiting for liquidation.

Settling repays all of your outstanding debt without sweeping your collateral. Your collateral stays in the Margin Account. After settling, you close the account normally to recover the collateral.

|                            | Liquidation                      | Settle Account           |
| -------------------------- | -------------------------------- | ------------------------ |
| When you can use it        | Only when HF is at or below 1.1x | Any time                 |
| What happens to collateral | Sent to your wallet              | Stays in account         |
| Use case                   | Cleaning up an unhealthy account | Voluntary full repayment |

Settling voluntarily while your account is still healthy keeps full control of the timing in your hands.

## How to avoid liquidation

Keep your Health Factor well above 1.1x. A Health Factor of 1.5x or higher gives meaningful cushion against normal market volatility. The closer you are to 1.1x, the less room you have before a routine price move puts your account at risk.

Specific steps:

* **Monitor collateral prices.** Volatile assets can move quickly. Check your Health Factor when markets are active.
* **Repay some debt.** [Repaying debt](/guides/margin/repay) is the fastest way to raise your Health Factor. Even a partial repayment improves your position.
* **Add more collateral.** [Transferring additional collateral](/guides/margin/deposit-collateral) into your Margin Account increases your collateral value and raises your Health Factor.
* **Avoid borrowing close to your maximum.** If your Net Available Collateral is near zero, you are already close to the threshold. Always leave headroom.
* **Use stable assets where possible.** USDC carries far less price risk than XLM or other volatile assets.

## What to do if liquidation is imminent

Act immediately. Once your Health Factor reaches 1.1x, your account is in the danger zone and prices may continue to move against you.

Your options, in order of speed:

1. **Repay debt** - reduces your outstanding balance and raises your Health Factor right away. You do not need to repay in full; even a partial repayment may be enough to move you back to a safe level. See [Repay a Loan](/guides/margin/repay).
2. **Add collateral** - transfer additional assets from your wallet into your Margin Account to increase your collateral value. See [Deposit Collateral](/guides/margin/deposit-collateral).

<Warning>
  Once your Health Factor reaches 1.1x, the account is eligible for liquidation. Do not assume prices will recover. Repaying debt or adding collateral are the only reliable ways to improve your position.
</Warning>

## Related

* [Health Factor](/guides/margin/health-factor) - understand how your Health Factor is calculated and what moves it.
* [Repay a Loan](/guides/margin/repay) - reduce your debt to improve your Health Factor.
* [Deposit Collateral](/guides/margin/deposit-collateral) - add collateral to strengthen your position.