Liquidations
Common questions about liquidations on Hubble.

What are liquidations?

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).

How do liquidations work?

For loans with 80% LTV: When you are liquidated, you lose 90% of your deposited collateral. You keep your borrowed USDH, receive 10% of your deposited assets, and your debt is wiped clean to zero.
Liquidations occur when any borrowing position reaches an 80% loan-to-value ratio (LTV). An 80% LTV means that the borrowed USDH is worth 80% of the deposited assets.
For loans with a grandfathered 90.9% LTV: When you are liquidated, you lose all of your collateral.
Every loan on Hubble can be viewed on the Leaderboard page. Every loan above the liquidation threshold can be liquidated via a liquidation bot. The user who triggers the liquidation earns 0.5% of the liquidated account's collateral.
When a liquidation is triggered, the forfeited collateral assets are distributed to USDH Vault providers, and USDH from the USDH Vault is used to pay off the loan. This reduces the use of bots to facilitate liquidations, and it rewards USDH Vault providers with around ~10% in gained value as their USDH is burned in return for collateral.

When can I get liquidated?

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 80%, then you can be liquidated (Note: some loans still maintain a 90.9% LTV and will be liquidated at that threshold).
When your account is liquidated, you lose 90% of your collateral. However, you keep all the USDH you borrowed.
Due to Hubble's low liquidation penalty, you only lose ~10% of the value of your deposited collateral at the time of liquidation if you still have 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.

Liquidation example

First, a user takes a loan:
  • SOL/USD is $100.0
  • User Position (debt=100, collateral=2 SOL)
  • User LTV is: (100 / 200)*100 = 50% LTV
  • User is safe. Liquidation point is 80% LTV.
Then, SOL price drops:
  • SOL/USD is $80.0
  • User Position (debt=100, collateral=2 SOL)
  • User LTV is: (100 / 160)*100 = 62.5% LTV
  • User is safe. Liquidation point is 80% LTV.
Then, SOL price drops again:
  • SOL/USD is $62.0
  • UserPosition (debt=100, collateral=2 SOL)
  • User LTV is: (100 / 124)*100 = 80.6% LTV
  • User is liquidated (loses 90% of collateral), because liquidation point is below the user's LTV. In this case, the user loses 90% of their collateral, receives 10% of their assets back, and their debt is fully paid by the USDH Vault.
  • After liquidation: User Position (debt=0, collateral=0 SOL)
    • If the user has kept their 100 USDH, they incur a net loss of ~10% (Collateral $124 - Debt $100 - $12.4 assets returned = $11.6 loss).

How can I avoid getting liquidated?

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.

How will I know I've been liquidated?

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 82.5% of your deposit and your debt is wiped clean. You will be returned 17.5% 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.

How are liquidation rewards awarded?

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.

Who can trigger liquidations?

Liquidations can be triggered via a liquidation bot. We will be releasing the code for a liquidation bot in the near future, stay tuned!

Why would I trigger a liquidation?

The user who triggers the liquidation will receive 0.5% of the total deposited collateral. For example, if a position has $1000 BTC as collateral, the user who triggers the liquidation receives $5 worth of BTC.