In the Secured Finance ecosystem, Liquidators play a crucial role in maintaining the health and stability of the decentralized loan protocol. As a Liquidator, you have the unique opportunity to participate in the liquidation process, ensuring the safety of lenders' funds while potentially earning rewards for your efforts. This section will guide you through how you can become a Liquidator, how the liquidation process works, and the associated risks and rewards.
Becoming a Liquidator:
To become a Liquidator, you don't need to meet any specific criteria. Any user, even if smart contracts, can call the liquidation process.
How Liquidation Works:
When a borrower's collateral value falls below the liquidation threshold, their loan becomes susceptible to liquidation. As a Liquidator, your role is to step in and purchase the undercollateralized loan at a discounted price, providing the borrower with an opportunity to recover their position. By liquidating the loan, you allow lenders to recoup their funds and mitigate the risk of defaults.
Being a Liquidator comes with both risks and rewards. The main risk is the potential price volatility of the assets involved in the liquidation process. The value of the collateral may fluctuate rapidly, affecting the profitability of the liquidation.
On the other hand, the rewards for successful liquidations can be lucrative. Liquidators stand to receive a portion of the discounted collateral acquired during the liquidation. This reward serves as an incentive for participants to actively engage in the liquidation process and contribute to the protocol's stability.