# 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. --- # Agent Instructions: Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter: ``` GET https://docs.shoebill.finance/risk/liquidation.md?ask= ``` The question should be specific, self-contained, and written in natural language. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.