Liquidation: A Worked Example

To make partial liquidation concrete, here is a step-by-step walkthrough with dollar amounts.

Setup

You deposit 100 shares of NVDA at

20 each (

2,000 total collateral value). You borrow $6,000 in stablecoins, the maximum 50% LTV. Your Health Factor starts at 1.00 relative to the liquidation threshold.

Week 1

NVDA drops 5% to

14. Your collateral is now worth

1,400. Your debt is still $6,000. Your LTV has risen to 52.6% ($6,000 /

1,400). The Health Factor is declining but still above the liquidation trigger. No action taken.

Week 2

NVDA drops another 8% to

04.88. Your collateral is now worth

0,488. Your LTV is 57.2%. The Health Factor crosses below 1.00, triggering partial liquidation.

Liquidation

The protocol does not sell everything. It sells just enough collateral to bring the Health Factor back above 1.00. In this case, it sells approximately 14 shares at

04.88 (

,468), applies the 5% liquidation fee ($73), and uses the remaining proceeds to pay down your debt. After liquidation, your position looks like this: 86 shares of NVDA worth $9,020, and roughly $4,600 in outstanding debt. Your LTV is back to approximately 51%, and your Health Factor is restored.

Key takeaway

You lost 14 shares to liquidation, not 100. The protocol sold the minimum necessary to stabilize your position. If NVDA recovers from here, you still participate in the upside on the remaining 86 shares. This is why borrowing below the maximum LTV gives you more buffer: if you had borrowed only $4,000 instead of $6,000, the same price decline would not have triggered liquidation at all.