> For the complete documentation index, see [llms.txt](https://docs.shoebill.finance/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.shoebill.finance/risk/liquidation.md).

# Liquidation

## Overview

Liquidation occurs when the value of a borrower's collateral does not adequately cover the value of the loan/debt, causing the borrower's health factor to fall below 1. This can happen when the value of the collateral decreases or when the value of the loan asset increases.

## Example

Adam deposits 1,000 WEMIX worth of stWEMIX and borrows 920 WEMIX. In this case, the LTV of the withdrawal is at the maximum limit of 92%, but if the overall protocol loan rate is below 92%, no liquidation will occur because the stWEMIX interest rate (currently around 10% or more) on WEMIX.FI is higher than the WEMIX loan interest rate, which is currently 3.5% APY.

However, if the overall protocol loan rate is above 92%, the loan interest rate may spike upto \~200%, and if this situation persists, liquidation will occur if \[loan principal + loan interest] exceeds \[collateral principal + stWEMIX interest].

The liquidation penalty is 4%, of which the liquidator can keep an additional 2.6% in exchange for liquidation.

## To Prevent Liquidation

You can avoid liquidation by keeping your health factor above 1. You can increase your health factor by paying off a portion of your debt or depositing additional collateral.