Liquidation

Liquidation at Lista Lending is a vital risk management tool that safeguards lenders’ capital by ensuring borrowers maintain sufficient collateralization. This mechanism enables full or partial liquidation of a borrower’s position when their Loan-To-Value (LTV) exceeds the market’s Liquidation Loan-To-Value (LLTV) threshold, ensuring market stability while supporting its vault-centric, permissionless lending model.

Understanding Loan-To-Value (LTV) Ratio

The Loan-To-Value (LTV) ratio is the ratio between the value of your loan and your collateral. It is a critical metric assessing a position’s risk by comparing debt to collateral value.

How to Calculate LTV

$$LTV = \frac{Loan\ Asset\ Amount}{Collateral\ Asset\ Amount\times \frac{Oracle\ Price}{Oracle\ Price\ Scale}}\times100\%$$

Where:

Oracle Price is represented in the ratio between the prices of collateral asset and loan asset.

Oracle Price Scale is $10^{36}$ and is used for price normalization.

Example:

At Lista's BNB/USDT market, if you deposit 1 BNB and borrow out 500 USDT.

At a certain time, the price of BNB/USDT Lista fetches from the oracles is $8\times10^{38}$. Divide this number by $10^{36}$, we will get the normalized price of BNB: 800 USDT.

Then the LTV of this loan is $\frac{500}{800}\times 100\% = 62.5\%$

Standard Liquidation

Standard liquidation is Lista Lending’s primary defense against borrower defaults, embedded in the protocol’s core contracts. Each market comes with its own liquidation loan-to-value (LLTV) ratio, an arbitraty number used as trigger for liquidation.

When Is a Position Liquidatable?

A position becomes liquidatable when its LTV exceeds the LLTV of its corresponding market.

This may occur due to:

• A drop in collateral value (e.g., BTCB price falls).

• An increase in debt from accrued interest.

• A combination of both.

How Liquidation Works

When a liquidation is triggered, any external party can repay part or all of the borrower’s debt and become the liquidator, receiving collateral of equivalent value plus a bonus determined by the Liquidation Incentive Factor (LIF).

LIF varies from market to market and is determined by a market's LLTV:

$$LIF=min(M,\ \frac{1}{\beta\times LLTV+(1-\beta)})$$

Where:

• $\beta$ is a constant, 0.3.

• $M$ is the maximum incentive factor, 1.15.

When a market has an LLTV of 80%, LIF ≈ 1.06 (6% bonus). Currently, Lista DAO sets a minimum LIF of 1.048.

To incentivize timely liquidation, all LIF bonus goes to the liquidator; Lista charges no fee.

A Step-by-Step Example

Let's say you deposited 100 USDT and borrowed out 91.5 USD1. This market has an LLTV of 91.5%.

Your LTV is $91.5/100 = 91.5\%$, so the moment interest starts accruing, your LTV will exceed the LLTV. A liquidation will be triggered and a liquidator will step in to repay the debt. (This is also why we do not recommend borrowing close to LLTV)

Now, a liquidator can either repay this loan in part or in full and receive some of the collateral plus bonus determined by the LIF. With an LLTV of 91.5%, the LIF for this market is:

$$LIF=min(M,\ \frac{1}{\beta\times 0.915+(1-\beta)})=1.026$$

This is smaller than the minimum LIF, 1.048 so $LIF=1.048$.

This means a certain amount of collateral will be seized:

$$Seized\ Collateral\ Value = Outstanding\ Loan\ Value\times LIF$$

The outstanding loan is 91.5 USD1 (plus a minuscule amount of interest). If the oracle dictates 1 USD1 = 1 USDT, then the amount of collateral seized will be:

$$91.5\times LIF = 91.5\times 1.048 = 95.892\ USDT$$

If the loan is repaid in full, which means the liquidator pays 91.5 USD1 plus a minuscule amount of interest, they will then receive slightly more than 95.892 USDT. Their profit is: minus gas fees.

Delayed Liquidation

Following the approval of LIP-024, delayed liquidation is launched for selected markets as the first benefit for LISTA holders.

Normally, when a position’s LTV exceeds its LLTV on Lista, a liquidation will be triggered. With delayed liquidation, eligible borrowers will get a buffer - a higher, new LLTV threshold to protect your positions for 24 hours for selected markets:

Collateral	Loan	Original LLTV	New LLTV	Market Hash
BTCB	U	86%	92%	0x6ef28e9f52ffd5e66b14ba95f3da17b782ce8c4a592218fa32f917ca10f4f054
BTCB	USD1	86%	92%	0x8de2e1f3e3935024a2667d8203983bdff70a1aee0c91665760e02c257d53032f
BTCB	USDT	80%	92%	0xea00a233473bc0585326eec959623a054798b7543205c5079bab49015a2bf810
slisBNB	BNB	96.5%	97%	0x2bb68bc7f70186f3d4f16db6a19986df6c6cdea3e589c1ae3d30b56b0632c5ec
slisBNB	lisUSD	85%	92%	0x7fe248d8459a88e50e8582c71219edbce1079437e58190aeab41ac503694f0a5
slisBNB	USD1	86%	92%	0x95f93825819b67a64610e6adb9ac5f70d5108f5121b9df6551e23a4a7a801b5b
slisBNB	U	86%	92%	0xaaf06d7c7fd32ac1b478bdf6f068d707ea32982f299b684ef79b1023a51ad3db
slisBNB	BNB	96.5%	97%	0x226935103b730aefad53849e4cf7d92f30083cc417222f395478dabdd9ff3cac
USD1	BNB	80%	92%	0xd384584abf6504425c9873f34a63372625d46cd1f2e79aeedc77475cacaca922
USD1	U	96.5%	97%	0x17230b8678f7efac75e99f4d9db9b2e5e74aabc1f34156b574b676a8e4e8e6f1
USDT	BNB	85%	92%	0xf4859576d776ccbc5c7848228da8edd47902d351b1195787742bf5a2927dfe8c
ETH	lisUSD	80%	92%
wBETH	lisUSD	80%	92%

For these markets, the total size of protected positions depends on the 7-day average LISTA holding:

Tier	7-day Weighted Average LISTA Holding	Total Protected Position Size
1	≥ 10,000 LISTA	≤ $10,000
2	≥ 50,000 LISTA	≤ $50,000
3	≥ 200,000 LISTA	≤ $200,000
4	≥ 1,000,000 LISTA	≤ $1,000,000
5	≥ 5,000,000 LISTA	≤ $10,000,000
6	≥ 15,000,000 LISTA	≤ $50,000,000

With delayed liquidation, eligible borrowers' positions will be one of the following statuses:

• Guarded: LTV is below the original LLTV. The position is healthy and pre-qualified for protection if the market moves against you.

• Protected: LTV is between the original and the new LLTV. A 24-hour grace period begins. Consider repaying your loan or adding collateral to bring its LTV down.

• Out of Guard: Delayed liquidation is not active either due to insufficient $LISTA holdings or the remaining tier capacity was exhausted when its LTV crossed the original LLTV. A liquidation will be triggered.

Protected positions will get 24 hours to be repaid or added with more collateral to bring its LTV down. If after 24 hours, the LTV is still above the original LLTV threshold, a liquidation will still be triggered as usual.

If a position's LTV crosses the original LLTV, but its size exceeds the remaining tier capacity, a partial or full liquidations will still be triggered. After 1 or more liquidations, if the total size of all positions pending liquidation is below the maximum protected size, these positions will be Protected once again.

Smart Lending Liquidation

Liquidation at Smart Lending works similarly but the value of collateral is calculated slightly differently. Refer to this article for more details.