What exactly is collateral liquidation?
Last updated October 16, 2025
Collateral liquidation, also known as auto-exchange, is a forceful conversion of a token into rUSD. This conversion uses the same oracle prices as the margin balance, but:
- a percentual penalty is included in the price, both to disincentivize collateral mis-management, as well as reward the liquidator who ultimately takes on the price risk of the liquidated collateral;
- liquidation fees are also charged, as a percentage of the liquidated amount (in rUSD), towards the insurance fund.
This is similar to what happens with position liquidations. The biggest difference for collateral, everything is assessed in terms of the total amount of liquidated collateral, whereas for positions, which imply leverage, reference LMR instead.
Was this article helpful?