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To guarantee the stability of loans, almost every decentralized lending protocol, including the Lif3 Protocol, depends on prompt and efficient liquidations. A procedure often sells some of the underlying collateral and pays back the loan if a borrower's loan is not properly collateralized for the borrowed amount.
For outstanding leveraged situations, borrowers should frequently check their Current Leverage and Liquidation Prices to ensure they are adequately collateralized.
Liquidation does not always imply complete loss of the initial collateral. The borrower pays a liquidation incentive on the borrowed amount, subtracted from the initial collateral when the borrower's position is liquidated. The borrower retains any residual collateral for the following liquidation. This procedure aids in ensuring that borrowers maintain positions with enough collateral to avoid penalties.
Borrowers may choose from several strategies to avoid liquidation:
Choose lending pools with more stability. Token pairs with higher volatility have a greater chance of going above or below the range of Liquidation Prices.
When you open a new leveraged position, choose a smaller amount of leverage with a wider range of Liquidation Prices.
Monitor your leveraged positions, especially during periods of high volatility, and decide whether you want to deleverage.
Finally, you have the option of providing tokens rather than borrowing. The risk of impermanent loss or liquidation does not exist for provided tokens. For any lending pool, you can supply tokens via the Lending tab.