Loan: Liquidations

To ensure all outstanding synthetics are over-collateralized, liquidations of collateral are enabled to be executed by any user once the collateralization ratio of a loan has gone below the liquidation ratio.

$$if \ Collateralization \ Ratio < Liquidation \ Ratio \ then \ Liquidation \ enabled$$

Liquidators are given collateral for synthetics redeemed based on the protocol price until the collateralization ratio is greater than or equal to the liquidation ratio. Liquidators may profit by purchasing synthetics when market price is lower than protocol price. A liquidator fee is granted to Liquidators and a liquidation fee is granted to AionicDAO.

The example below shows liquidation on a sample loan. The loan has liquidation enabled as the ratio is below the Liquidation Ratio.

Parameters
Liquidator Fee	2.5%
Liquidation Fee	2.5%
Liquidation Ratio	125%
Collateral Price	$10,000/ETH
Synth Price	$100/Synth

Accounts Before Liquidation

Loan		Liquidator		DAO
Collateral	12 ETH	Accounts	0 ETH	Accounts	0 ETH
Liability	1000 Synths		200 Synths
Ratio	120%

Note that the Ratio is below the Liquidation Ratio so liquidation is enabled. Suppose the Liquidator calls the liquidate function with a payment of 200 synths resulting in partial liquidation.

$$Collateral \ Liquidated = \frac{Synths * Price(Synths)}{Price(ETH)} * (1+Fees)$$

Collateral \ Liquidated = \frac{200 \ Synths * $100/Synth}{$10,000/ETH} * (1+5\%) = 2.1 \ ETH

$$Liquidator \ Portion = \frac{Synths * Price(Synths)}{Price(ETH)} * (1+Liquidator Fee)$$

Liquidator \ Portion = \frac{200 \ Synths * $100/Synth}{$10,000/ETH} * (1+2.5\%) = 2.1 \ ETH

$$DAO \ Portion = \frac{Synths * Price(Synths)}{Price(ETH)} * (Liquidation Fee)$$

DAO \ Portion = \frac{200 \ Synths * $100/Synth}{$10,000/ETH} * (2.5\%) = 0.05 \ ETH

Accounts After Liquidation

Loan		Liquidator		DAO
Collateral	9.9 ETH	Accounts	2.05 ETH	Accounts	0.05 ETH
Liability	800 Synths
Ratio	123.75%