> For the complete documentation index, see [llms.txt](https://docs-personal.isle.finance/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs-personal.isle.finance/how-isle-personal-works/understanding-liquidations-risks.md).

# Understanding Liquidations Risks

When your LTV exceeds the defined thresholds, your position becomes subject to liquidation.

### Two Types of Liquidation

Isle Personal uses a two-tier liquidation system:

| Type            | Trigger                     | Action                                 |
| --------------- | --------------------------- | -------------------------------------- |
| **Deleverage**  | LTV > Deleverage Threshold  | Partial liquidation with limited scope |
| **Liquidation** | LTV > Liquidation Threshold | Full position can be liquidated        |

**Deleverage** is a softer intervention that allows only partial debt repayment (limited by a close factor), giving you time to restore your position health.

**Liquidation** is triggered when your position is critically unhealthy, allowing liquidators to repay the entire debt and seize corresponding collateral.

### When Liquidation Happens

Since collateral values fluctuate, your LTV can change even without borrowing more:

#### Scenario 1: Collateral Price Drop

You borrowed $8,000 against $10,000 collateral (80% LTV). The collateral price drops 10%.

* New collateral value: $9,000
* Your debt: $8,000
* New LTV: $8,000 / $9,000 = 88.9%

You've crossed the Deleverage threshold (85%) and may be subject to partial liquidation.

#### Scenario 2: Debt Accumulation

Your debt grows over time due to interest, even if you don't borrow more:

* Initial: $8,000 borrowed against $10,000 collateral (80% LTV)
* After 6 months with 10% APR: Debt grows to \~$8,400
* New LTV: $8,400 / $10,000 = 84%

If interest continues to accrue without repayment, you'll eventually hit liquidation thresholds.

{% hint style="danger" %}
These two factors can occur **simultaneously**, accelerating your path to liquidation. Monitor both your debt growth and collateral price movements.
{% endhint %}

### The Cost of Liquidation

When your position is liquidated, you don't just lose collateral equal to your debt — you lose **more** due to the liquidation incentive.

Liquidators receive a bonus (the **Liquidation Incentive Factor** or LIF) for maintaining protocol health. This bonus comes from your collateral:

$$
\text{Seized Collateral Value} = \text{Repaid Debt} \times \text{LIF}
$$

Where LIF is typically between 1.05 and 1.22 (5% to 22% penalty).

<details>

<summary>Example</summary>

Let's say your position is $10,000 wstETH collateral with $9,000 borrowed:

* LTV: 90% (at liquidation threshold)
* LIF: 1.05 (5% penalty)

A liquidator repays your $9,000 debt and receives:

**Your loss**: $9,450 worth of collateral to clear $9,000 debt = **$450 penalty**

You're left with only $550 worth of collateral instead of $1,000 if you had repaid yourself.

</details>

### Protect Your Positions

To avoid liquidation, you can:

1. Add more collateral — Lower your LTV by increasing the denominator (see deposit)
2. Repay part of your debt — Lower your LTV by decreasing the numerator (see repay)
3. Monitor prices — Keep track of your collateral's value relative to your debt


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