Liquidation Process

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.

⚠️ Important: Once your LTV reaches 80%, a 72-hour liquidation countdown begins. Returning below 80% is not enough to stop it — you must bring your LTV below 70% within the 72 hours, or your collateral is liquidated.

Liquidation Thresholds

Loan-to-Value (LTV)	Status	Borrower Action	Timeline
0-70%	Safe Zone	Monitor your loan	Ongoing
70-80%	Warning Zone	Lower your LTV; once the 80% timer starts, only dropping below 70% is safe	Ongoing
80%+	Liquidation Risk	Bring LTV below 70% to avoid liquidation	72 hours
≥70% when the 72h timer ends	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 $71,429 BTC: LTV hits 70% (Warning Zone)

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

• After 72 hours: If LTV is still 70% or higher, liquidation executes

The 72-Hour Buffer

When LTV reaches 80%, borrowers have exactly 72 hours to bring their LTV below 70% (returning under 80% is not enough) by one of:

1. Add more Bitcoin collateral to reduce LTV below 70%

2. Make a partial repayment large enough to bring LTV below 70%

3. Repay the full loan to close the position

Automatic Liquidation

If LTV is not brought below 70% within 72 hours:

1. Smart contract execution: Liquidation triggers automatically

2. Bitcoin sale: Enough collateral to cover the debt plus the 5% liquidation fee is sold on libreDEX at a 1% discount to the current market price. The rest stays in your vault.

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

What has to be covered:

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

2. Liquidation fee: 5% of the outstanding debt = $513.75

Total to raise: $10,788.75.

The sale: Bitcoin is sold at a 1% discount to the oracle price ($61,875/BTC), and only as much as is needed is sold — not the whole vault:

$10,788.75 ÷ $61,875 = 0.17436 BTC sold

Borrower keeps: 0.2 − 0.17436 = 0.02564 BTC, still in the vault, worth about $1,603 at the $62,500 market price.

You are left holding Bitcoin, not cash. The vault is not emptied — whatever wasn't needed to clear the debt and fee stays yours and can be withdrawn.

Borrowers without sufficient staked LIBRE voting power have a further ~1.2% of collateral sold as an execution buffer, so the sale definitely covers the debt. This is not an extra fee: leftover USDT and any unsold Bitcoin are both returned to the borrower. Its only real cost is that slightly more Bitcoin was converted than strictly necessary. Borrowers above the voting-power threshold have no buffer added at all.

Note: To avoid liquidation, Bitcoin must recover enough to bring LTV back below 70% — roughly $71,400+ in this example. Recovering past $62,500 only returns you under 80%, which is not enough to stop liquidation.

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 — enough to bring LTV below 70%

• Partial repayment: Reduce loan balance enough to bring LTV below 70%

• 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 (cure below 70%)	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

• Discounted sale: Liquidated Bitcoin is sold at a 1% discount to the current market price — a limit sell order on libreDEX priced at 99% of the oracle price, which incentivizes fast fills

• 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.