What if I get LIQUIDATED?
This is a common question we get.
And although the fear is unwarranted, it’s understandable.
Liquidation has a severe connotation in finance, and an even bigger one in the PulseChain community.
But once you understand how liquidations work in Liquid Loans, and this simple strategy to avoid them, you won’t fear anymore.
The debt of the Vault is canceled and absorbed by the Stability Pool, and its collateral is distributed among the Stability Providers.
The owner of the Vault still keeps the full amount of USDL borrowed but loses ~10% value overall, hence it is critical to always keep the ratio above 110% – ideally above 150%.
The reason why the fear exists is because typically users total value goes to $0.00 when margin or leverage trading on exchanges.
But in Liquid Loans, users only lose a maximum of 10% of their total value.
For example, if a user is liquidated with $10,999 worth of PLS, they lose the PLS but keep 10,000 USDL. This is far from a liquidation to zero.
But regardless, nobody wants to lose 10% instantly, so do this to avoid liquidation.
Liquidations are a scary term, but investing emotionally is a time-tested strategy to getting rekt.
If you understand liquidations and how to avoid them, the fear dissipates.
P.S. Just keep your USDL in the Stability Pool and monitor your vault. That way you’ll always have access to it if you need to repay your debt and you’ll earn yield while waiting.
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Disclaimer:Please note that nothing on this website constitutes financial advice. Whilst every effort has been made to ensure that the information provided on this website is accurate, individuals must not rely on this information to make a financial or investment decision. Before making any decision, we strongly recommend you consult a qualified professional who should take into account your specific investment objectives, financial situation and individual needs.
Connor is a US-based digital marketer and writer. He has a diverse military and academic background, but developed a passion over the years for blockchain and DeFi because of their potential to provide censorship resistance and financial freedom. Connor is dedicated to educating and inspiring others in the space, and is an active member and investor in the Ethereum, Hex, and PulseChain communities.