> For the complete documentation index, see [llms.txt](https://docs.secured.finance/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.secured.finance/usdfc-stablecoin/core-mechanics/liquidation.md).

# Liquidation

How under-collateralized Troves are resolved

## What are Liquidations?

Liquidation is how the protocol removes under-collateralized debt to limit the threat it poses to the system. When a Trove's collateral ratio falls below **110%**, anyone can trigger its liquidation: the Trove's debt is repaid by the [Stability Pool](/usdfc-stablecoin/core-mechanics/stability-pool.md) and its FIL collateral is distributed to the pool's depositors. The Trove is closed in the process.

The threshold extends during [Recovery Mode](/usdfc-stablecoin/core-mechanics/recovery-mode.md): while the system-wide ratio (TCR) is below 150%, any Trove **below the current TCR** can also be liquidated. For a Trove at or above 110%, this only happens if the Stability Pool can absorb its entire debt, only collateral worth 110% of its debt is taken, and the remainder stays claimable by the owner — see the [Recovery Mode liquidation table](/usdfc-stablecoin/core-mechanics/recovery-mode.md#liquidation-behavior-in-recovery-mode).

## The process

1. **Trigger** — a Trove's ratio drops below the threshold and a **liquidator** (any address) calls the liquidation function.
2. **Debt repayment** — USDFC equal to the Trove's debt is burned from the Stability Pool.
3. **Collateral distribution** — the Trove's FIL, minus the liquidator's 0.5% share, goes to Stability Pool depositors pro rata. If the pool can't cover the debt, the remainder is [redistributed](/usdfc-stablecoin/core-mechanics/stability-pool.md#if-the-pool-runs-dry-redistribution) across all active Troves in proportion to their collateral — except in Recovery Mode for Troves between 110% and the TCR, which are only liquidated if the pool can absorb their entire debt.

## Key parameters

| Parameter             | Description                                                 | Value                                                                                                                             |
| --------------------- | ----------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------- |
| Liquidation threshold | Per-Trove ratio below which liquidation is possible         | 110% (in Recovery Mode: the current TCR, up to 150% — Troves at or above 110% only if the Stability Pool covers their whole debt) |
| Liquidator reward     | Share of the liquidated collateral paid to the liquidator   | 0.5%                                                                                                                              |
| Gas compensation      | Paid to the liquidator from the Trove's Liquidation Reserve | 20 USDFC                                                                                                                          |

## What each party experiences

**The liquidated borrower** (in Normal Mode) loses their collateral but keeps every USDFC they borrowed, and their debt is gone — the Trove is simply closed. When liquidation happens just below 110% (the typical case), the collateral lost is worth roughly 10% more than the debt cleared: that gap is the borrower's loss and the system's safety margin. In a capped Recovery Mode liquidation of a Trove above 110%, only collateral worth 110% of the debt is taken and the rest is claimable by the owner.

**Stability Pool depositors** acquire the FIL at that same discount in that case, after the liquidator's share — see [Stability Pool](/usdfc-stablecoin/core-mechanics/stability-pool.md) for the economics.

**The liquidator** is whoever pays the gas to trigger it, compensated with the 20 USDFC reserve plus 0.5% of the collateral.

## Becoming a liquidator

Liquidation is permissionless, and the app makes it accessible: the **Risky Troves** page (under the **More** tab) lists Troves ordered by collateral ratio with a **Liquidate** action next to any that are eligible, plus a control to liquidate several at once. The 20 USDFC + 0.5% compensation is designed to cover gas with a margin, so watching the risky list during sharp FIL drops can be profitable — but you're competing with bots, and a transaction that loses the race still costs gas.

{% hint style="info" %}
Liquidation depends on the oracle price, not any exchange's price — a Trove that looks under-water on a DEX chart isn't liquidatable until the [protocol's price feed](/usdfc-stablecoin/core-mechanics/price-oracle.md) says so.
{% endhint %}

## Where next

* [Stability Pool](/usdfc-stablecoin/core-mechanics/stability-pool.md) — where the debt and collateral go
* [Price Oracle](/usdfc-stablecoin/core-mechanics/price-oracle.md) — the price that decides eligibility
* [Managing Collateral Effectively](/usdfc-stablecoin/getting-started/managing-collateral-effectively.md) — staying out of liquidation range