Mechanics

Understanding Libre's liquidation process with 72-hour buffers and transparent rules.

Overview

Libre's liquidation system is designed to be predictable and fair, giving borrowers time to respond to market volatility while protecting lender funds.

Liquidation Thresholds

Loan-to-Value (LTV)	Status	Borrower Action	Timeline
0-70%	Safe Zone	Monitor your loan	Ongoing
70-80%	Warning Zone	Consider adding collateral	Ongoing
80%+	Liquidation Risk	Must act to avoid liquidation	72 hours
80%+ (after 72h)	Liquidation	Automatic execution	Immediate

How Liquidation Works

Example Scenario

Let's walk through a liquidation example:

Initial Loan Setup

• Bitcoin price: $100,000

• Collateral: 0.2 BTC = $20,000

• Loan amount: $10,000 USDT

• Initial LTV: 50%

Price Movement Triggers

• At $87,500 BTC: LTV hits 70% (Warning Zone)

• At $62,500 BTC: LTV hits 80% (Liquidation Risk - 72-hour timer starts)

• After 72 hours: If still at 80%+ LTV, liquidation executes

The 72-Hour Buffer

When LTV reaches 80%, borrowers have exactly 72 hours to:

1. Add more Bitcoin collateral to reduce LTV below 80%

2. Make a partial repayment to reduce the loan balance

3. Repay the full loan to close the position

Automatic Liquidation

If no action is taken within 72 hours:

1. Smart contract execution: Liquidation triggers automatically

2. Bitcoin sale: Collateral sold on libreDEX at market rate

3. Lender repayment: USDT lenders are repaid first (principal + interest)

4. Excess distribution: Any remaining Bitcoin value goes back to borrower

Liquidation Math

Calculation Example

Liquidation Scenario:

• Collateral: 0.2 BTC at $62,500 = $12,500 value

• Outstanding debt: $10,000 + interest = $10,275

• Liquidation sale: 0.2 BTC sold at current market rate

Proceeds Distribution:

1. Platform fee: 1% of collateral value = $125

2. Lender repayment: $10,275 (principal + interest)

3. Borrower receives: $12,500 - $125 - $10,275 = $2,100

Note: If Bitcoin price recovered above $62,500 during the 72-hour period, liquidation could be avoided by the improved LTV ratio.

Why 72 Hours?

Protection Against Volatility

• Market corrections: Time for temporary price dips to recover

• Weekend gaps: Allows response even during market closures

• Global accessibility: Accommodates users in different time zones

• Technical issues: Buffer for wallet or connectivity problems

Fair Warning System

• No surprise liquidations: Clear advance notice

• Multiple response options: Add collateral, repay, or close position

• Transparent rules: Everyone knows exactly when liquidation occurs

Monitoring Your Position

Real-Time Tracking

• Dashboard alerts: Visual warnings as LTV approaches thresholds

• Email notifications: Alerts sent to registered email addresses

• Mobile app: Push notifications for critical LTV levels

• API access: Programmatic monitoring for advanced users

LTV Calculation

Current LTV = (Loan Balance / Collateral Value) × 100

Where:
- Loan Balance = Principal + Accrued Interest
- Collateral Value = Bitcoin Amount × Current BTC Price

Avoiding Liquidation

Best Practices

1. Maintain buffer: Keep LTV well below 70% when possible

2. Monitor regularly: Check your position during volatile markets

3. Set alerts: Use notifications to stay informed

4. Have a plan: Know how you'll respond if LTV rises

Response Options

• Add collateral: Send more Bitcoin to your vault address

• Partial repayment: Reduce loan balance to improve LTV

• Full repayment: Close the position entirely

• Refinance: Move to a different pool with better terms

Liquidation vs. Traditional Platforms

Feature	Libre	Traditional Platforms
Warning period	72 hours	Often immediate
Liquidation trigger	80% LTV	Varies (often 75-85%)
Process transparency	Fully on-chain	Often opaque
Borrower protection	Grace period + warnings	Limited
Excess recovery	Returned to borrower	Varies by platform

Technical Implementation

Smart Contract Logic

• Price oracles: Real-time Bitcoin price feeds

• Automated monitoring: Continuous LTV calculation

• Timer mechanisms: Precise 72-hour countdown

• Liquidation execution: Atomic settlement process

libreDEX Integration

• Market sale: Liquidated Bitcoin sold at current rates

• Slippage protection: Safeguards against price manipulation

• Transparent pricing: All trades visible on-chain

• Immediate settlement: Fast conversion to USDT

The liquidation system balances borrower protection with lender security, ensuring fair outcomes for all participants in the Libre ecosystem.