Liquidations

Liquidation is a critical safety mechanism in Autara designed to protect lender capital and maintain overall market solvency. When a borrower’s loan-to-value (LTV) exceeds the Unhealthy LTV threshold defined by the market creator, their position becomes eligible for liquidation.

Autara uses a partial liquidation model. Rather than having to liquidate the entire position, only the minimum amount of collateral needed to restore the account’s health factor is. This approach minimizes unnecessary losses, reduces price impact, and encourages rapid resolution of undercollateralized positions.

Liquidations are permissionless and can be executed by any third-party liquidator. In return, liquidators are rewarded with a portion of the liquidation penalty, which is paid by the borrower at the time of liquidation.

Each market defines its own liquidation penalty range, as configured by the curator. A range is defined to scale penalties with risk, making liquidation attractive for liquidators as the position becomes more undercollateralized. This dynamic approach helps ensure timely repayment while minimizing unnecessary loss for the borrower.

Penalty proceeds are distributed as follows:

• 50% to the liquidator as an incentive to promptly act on unhealthy positions
• 25% to the protocol to support infrastructure and development
• 25% to the market-specific insurance fund, which acts as a backstop in extreme conditions

The insurance fund plays a key role in Autara’s risk framework. In the event that a liquidation fails to fully cover the borrower’s debt, the insurance fund can absorb the shortfall and protects depositors.

By combining partial liquidations, curator-defined penalties, and a dedicated insurance buffer, Autara ensures that liquidations are fair, efficient, and market-safe.