Liquidation

Current Implementations on Other Protocols

Most lending protocols rely on two key parameters to determine liquidation criteria:

• LTV (loan-to-value);

• Liquidation threshold.

Loans are considered “unhealthy” if a borrower’s total collateral adjusted by the liquidation threshold (a number < 1) falls below the borrower’s debt, including interest. This makes loan health almost entirely dependent on the LTV ratio.

The Voyage Solution

In Voyage's case, loans are a fundamentally different product.

1. Loans have fixed terms with fixed interest rates that are not rebalanced mid-loan;

2. Loans are collateralized by less liquid non-fungible assets (NFTs).

Therefore, it is critical for the protocol to incentivize regular repayments. Consequently, liquidation is triggered when the condition of $TPD(\alpha) \geq 0$ is met.

In effect, this implies that payments must be made in a timely manner, else both the previously paid instalments will be forfeited and the NFTs will be liquidated to repay the lenders.

Liquidation Mechanism

In order to prevent large liquidations from causing the floor price to fall unnecessarily, the protocol applies a liquidation discount for the NFTs. If $floorPrice \gt debt$​, a discount of $LB$ is applied.