> For the complete documentation index, see [llms.txt](https://unitus.gitbook.io/unitus/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://unitus.gitbook.io/unitus/products/borrow/liquidation.md). # Liquidation ## What Is Liquidation? Borrowers need to lock up supported assets in a smart contract as collateral to support your crypto loan. If the loan failed to satisfy the ***Adequacy Ratio*** and there was no top-of of collateral or timely repayment, part of your collateralized asset will be auctioned to repay your loan. ## What Is Liquidation Penalty? The collateral assets of defaulted loans will be sold with a discount to ensure a timely repayment and protect the lender from any losses. This penalty will go to liquidators as a reward because they helped maintain the overall health of Unitus. ## How To Avoid Liquidation? Borrowers need to exercise caution and carefully monitor their debit position to ensure the Adequacy Ratio remains above 1 at all time to avoid liquidation, by refinancing or terminating your loans in time. ## How Much Is the Liquidation Penalty? The liquidation penalty for all assets supported on Unitus is set at 7%. This penalty is imposed when a user's collateral falls below the required Adequacy Ratio, and a portion of the collateral is liquidated to repay the loan. The 7% penalty is deducted from the liquidated collateral and is paid to the liquidator as a bonus for their role in maintaining the overall health of the Unitus platform. ## **How To Participate In Liquidation?** Liquidation is transparent and open to everyone on Unitus. Participants who assist in repaying defaulted loans on behalf of borrowers will receive a rewarding bonus known as the ***Liquidation Penalty***. This mechanism plays a crucial role in maintaining the system's solvency and resilience. On the liquidation page, you can view shortfall for all existing loans on Unitus. Click on the default loan to continue.
Select one asset you'd like to use for repaying the defaulted loan and another asset that you'd like to receive in exchange. Enter the amount and click on ‘Liquidate’ to continue. Please note you can liquidate **up to 50%** of selected collateral asset for a defaulted loan in one transaction.
After the transaction is confirmed, the liquidated collateral assets will be automatically sent to the same address as the liquidator. --- # Agent Instructions This documentation is published with GitBook. GitBook is the documentation platform designed so that both humans and AI agents can read, navigate, and reason over technical content effectively. Learn more at gitbook.com. ## Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter, and the optional `goal` query parameter: ``` GET https://unitus.gitbook.io/unitus/products/borrow/liquidation.md?ask=&goal= ``` `ask` is the immediate question: it should be specific, self-contained, and written in natural language. `goal` is optional and describes the broader end goal you are ultimately trying to accomplish on behalf of the user. GitBook uses it to tailor the answer towards what is most useful for that goal. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.