Liquidations are one of the most misunderstood parts of decentralized lending.
In a system such as @JUST DAO liquidation mechanisms exist because borrowed assets must remain adequately protected by collateral.
A simplified sequence looks like this:
1. A user deposits collateral.
2. The user borrows against that collateral.
3. The collateral value changes with the market.
4. If the position crosses a defined risk threshold, liquidation mechanisms can become active.
5. Part of the collateral may be sold or otherwise used to restore the required balance.
This process is not simply a penalty. It is part of the risk-management architecture that protects the lending market.
Anyone using DeFi borrowing products should understand liquidation thresholds before taking leverage.
@JUST DAO @Justin Sun孙宇晨 #TRONEcoStar
In a system such as @JUST DAO liquidation mechanisms exist because borrowed assets must remain adequately protected by collateral.
A simplified sequence looks like this:
1. A user deposits collateral.
2. The user borrows against that collateral.
3. The collateral value changes with the market.
4. If the position crosses a defined risk threshold, liquidation mechanisms can become active.
5. Part of the collateral may be sold or otherwise used to restore the required balance.
This process is not simply a penalty. It is part of the risk-management architecture that protects the lending market.
Anyone using DeFi borrowing products should understand liquidation thresholds before taking leverage.
@JUST DAO @Justin Sun孙宇晨 #TRONEcoStar
