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Red Bank Liquidation Mechanics

Collateralised Borrowing

When a borrower’s loan-to-value (LTV) ratio falls below the required maintenance margin, which happens when their collateral decreases in value relative to their debt, they are susceptible to being liquidated. Any address can repay a fraction of a borrower’s debt (max fraction determined by the close factor) in exchange for an equivalent amount of the borrower’s collateral plus a bonus. Liquidators can choose to receive either liquidity tokens (which will be transferred from the borrower to them) or receive the underlying assets (which causes the borrower’s liquidity tokens to be burned).
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