Liquidation Mechanism

Omneon's liquidation system protects lenders from bad debt while giving borrowers maximum time to manage their positions safely.

🎯 Liquidation Basics

When Liquidation Occurs

A position becomes liquidatable when:

Health Factor < 1.0

Where:
Health Factor = (Collateral Value × Liquidation Threshold) ÷ Total Debt

Key Thresholds

Metric	Value	Description
Max LTV	75%	Maximum initial borrow amount
Liquidation Threshold	80%	When liquidation becomes possible
Liquidation Bonus	5%	Incentive for liquidators

Example Liquidation Scenario

Initial Position:
- Collateral: $1,000 IOTA
- Borrowed: $750 vUSD (75% LTV)
- Health Factor: 1.07

Price Drop Scenario:
- Collateral: $900 IOTA (10% price drop)
- Borrowed: $750 vUSD
- Health Factor: 0.96 ← LIQUIDATABLE

⚡ Liquidation Process

Step 1: Position Detection

• Continuous monitoring via price oracle updates

• Health factor recalculated with each price change

• Public liquidation eligibility when HF < 1.0

Step 2: Liquidator Action

1. Anyone can liquidate an unhealthy position

2. Repay borrower's debt (up to 50% maximum per transaction)

3. Receive collateral + liquidation bonus

4. Position automatically updated

Step 3: Liquidation Execution

// Simplified liquidation logic
function liquidate(borrower, repayAmount) {
    require(healthFactor(borrower) < 1.0, "Position healthy");
    require(repayAmount <= maxLiquidation(borrower), "Excess liquidation");
    
    // Calculate collateral to seize
    collateralToSeize = (repayAmount × (100% + liquidationBonus)) ÷ collateralPrice;
    
    // Transfer assets
    repayBorrowerDebt(repayAmount);
    transferCollateralToLiquidator(collateralToSeize);
    updateBorrowerPosition(borrower);
}

💰 Liquidation Economics

Liquidation Bonus Calculation

Liquidator Receives:
Collateral Value = Repay Amount × (1 + Liquidation Bonus)

Example:
- Liquidator repays: $100 vUSD
- Liquidation bonus: 5%
- Collateral received: $105 worth of IOTA
- Liquidator profit: $5 (5%)

Partial Liquidation

• Maximum 50% of debt can be liquidated per transaction

• Multiple liquidations possible if still unhealthy

• Gives borrowers chance to save their position

Liquidation Limits

Max Liquidation = min(
    50% of total debt,
    Available liquidator funds,
    Available collateral
)

🛡️ Borrower Protection

Early Warning System

• AI notifications before liquidation risk

• Health factor monitoring with color-coded alerts

• Email alerts at critical thresholds

Grace Period Features

• Partial liquidations provide multiple opportunities

• Add collateral function to improve health factor

• Repay debt to reduce liquidation risk

Protection Mechanisms

Health Factor Zones:
🟢 > 2.0  : Very Safe
🔵 1.5-2.0: Safe  
🟡 1.2-1.5: Caution
🔴 1.0-1.2: Danger
⚫ < 1.0  : Liquidatable

🤖 AI-Enhanced Protection

Proactive Monitoring

• Continuous position tracking for all users

• Price trend analysis and volatility predictions

• Personalized risk assessments

Smart Notifications

Alert Types:
- Health factor below 1.5
- Rapid price movements affecting position
- Liquidation risk within 24 hours
- Market volatility warnings

Optimization Suggestions

• Add collateral recommendations

• Partial repayment strategies

• Market timing for position adjustments

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Best Practices

For Borrowers

• Monitor health factor regularly

• Set up AI notifications for early warnings

• Maintain safe buffer above liquidation threshold

• Add collateral before emergency situations

For Liquidators

• Monitor unhealthy positions continuously

• Calculate profitability before liquidating

• Use automated tools for competitive advantage

• Understand gas costs and timing