Liquidations as a Strategy (Advanced)
⚠️ Professional-Level Risk Acting as a liquidator is a specialized role. Mistakes can lead to losses due to slippage, gas costs, or bugs. This section is descriptive, not a recommendation.
Many lending protocols, including PrimeFi‑style designs, reward liquidators with a bonus. When a borrower’s Health Factor falls below 1.0:
The position becomes eligible for liquidation.
A liquidator can repay a part of the borrower’s debt.
In return, the liquidator receives collateral at a discount (the “liquidation bonus”).
How a Liquidation Strategy Could Look
Conceptual steps:
Maintain a reserve of USDC and/or XDC (or whatever assets are commonly borrowed).
Monitor PrimeFi positions programmatically:
Watch Health Factor values approaching 1.0.
Scan for sudden drops in collateral prices or market-wide volatility.
When a position becomes liquidatable:
Submit a liquidation transaction that repays part of the debt.
Receive collateral at a discount if the transaction succeeds.
Manage the acquired collateral:
Hold it, trade it, or redeploy it, depending on your objectives.
Why Only Advanced Users Should Consider This
Timing and gas costs matter; opportunities can vanish quickly.
If many liquidators compete, MEV and priority fees become important.
Bad parameter choices (e.g., wrong amount repaid, wrong asset routing) can turn a “profitable” liquidation into a loss.
In short, liquidation is a form of market making in protocol risk, not a passive yield strategy.
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