Common questions about liquidations on Hubble.
Liquidations are a way Hubble can settle outstanding debt by seizing collateral. Collateral is funding provided by a borrower to make sure a debt can be settled through the liquidation process. If a debt is not repaid according to the terms agreed upon, then a borrower forfeits their collateral.
On Hubble, users are liquidated when the value of their collateral drops below an acceptable level compared to their borrowing. Liquidations are a kind of insurance that guarantees a borrowing platform can remain solvent (doesn't lose funds and go out of business).
Liquidations on Hubble occur via our Hybrid Liquidation Model. Assets from the original vault are subject to USDH Vault Liquidations, funded by the USDH provided by depositors. Any new assets being onboarded to the protocol will be liquidated by bots that facilitate market-based liquidations.
Liquidations happen when the value of your collateral decreases and your LTV increases. If your LTV is 50% and the value of your collateral decreases 10%, then your LTV rises to 60%.
If your LTV reaches the maximum LTV of the vault in which you have a loan, then you can be liquidated.
When your account is liquidated, you lose the majority of your collateral, and this % will depend on the LTV of the vault. For example, if the vault has an 80% LTV, you will lose 90% of your collateral, and receive 10% back. However, you keep all the USDH you borrowed.
If you swapped your USDH for other assets that also dropped in value, then you incur a greater loss of value than if you held USDH or put it to work in more low-risk DeFi plays like providing liquidity for USDH on Saber or Mercurial.
Maintain a healthy LTV to prevent the possibility of being liquidated. You can do this by depositing additional collateral to your loan or repaying some of your borrowed USDH.
Every user has a different approach to taking risks, and you should ask yourself some questions to assess how much risk you would like to take when borrowing:
- How much time do you have to consistently watch market prices and improve your LTV?
- Can you easily access your computer, the internet, your wallet, Hubble, and Solana if you need to improve your position in a short amount of time?
- What resources do you have to deposit additional collateral, if necessary? Can you easily access those resources?
- Can you easily repay some of your USDH loan, if necessary? Have you deposited USDH somewhere else, and is it easy to get it back? Have you swapped USDH into other tokens?
If you don't have time to continuously maintain your account, then it's a good idea to start off with a lower LTV in case of extreme drops in collateral value. Crypto is an extremely volatile market. For example, in May 2021, the entire crypto market cap fell by nearly $1 trillion in one day.
Your position on the Dashboard page will no longer reflect your deposit or your USDH debt.
For 80% LTV: When you get liquidated, you forfeit 90% of your deposit and your debt is wiped clean. You will be returned 10% of your deposited collateral after liquidation.
For 90.9% LTV: When you get liquidated, you forfeit your entire deposit and your debt is wiped clean.
USDH Vault providers receive liquidation rewards in proportion to their share of the USDH Vault. If you deposited 1% of the USDH in the USDH Vault, you will receive 1% of the liquidation rewards.
These rewards come from the collateral in liquidated accounts. If a liquidated account holds SOL and BTC, then you will receive your fair share of those tokens when the liquidation occurs.