Liquidation

Liquidation occurs when a position’s Debt ratio (Debt to Value Ratio) exceeds the maintenance threshold. At this point, liquidators can step in to close the position, ensuring that borrowed funds are repaid to lenders.

Mighty Finance implements an optimized liquidation system that balances capital efficiency with user protection.

Liquidation Process

• When a Debt ratio surpasses the Liquidation Threshold, a liquidation is triggered to forcefully close the position.

• Borrowed funds are repaid to the lending pool.

• Any remaining collateral (after deducting a liquidation bounty) is returned to the user.

• The liquidation process is time-sensitive and depends on blockchain congestion.

Liquidation Thresholds

The liquidation threshold varies based on asset type of selected LP and market conditions:

• Stablecoin pairs: 80% Debt Ratio

• General asset pairs: 70% Debt Ratio

• High-risk assets: Subject to governance updates

These parameters may be adjusted based on market conditions and risk assessment models.

Liquidation Incentive

To encourage timely liquidations, Mighty Finance introduces Liquidiation Incentive of 7.5% to the total position value.

Partial Liquidation Mechanism

For low-liquidity pools and large positions, Mighty Finance uses a staged liquidation process:

• Initial liquidation covers 50% of the position

• If the position remains above the liquidation threshold, another 25% is liquidated

• This process repeats until the position stabilizes or is fully closed

Important Considerations

• Liquidation is not instant. Execution depends on network congestion and available liquidators.

• Borrowers should actively monitor their positions and adjust leverage accordingly.

• Yield farming rewards and trading fees are not factored into liquidation price calculations.

By combining real-time risk monitoring, automated liquidation triggers, and optimized discount structures, Mighty Finance ensures a robust and fair liquidation system for users and lenders alike.