Liquidations

Liquidation is the enforcement mechanism that keeps Fira's lending markets solvent. When a borrower's collateral value drops below the required threshold relative to their debt, the position becomes eligible for liquidation. Third-party liquidators repay the debt and receive the borrower's collateral at a bonus.

When Liquidation Happens

Every borrowing position has two key ratios:

• LTV (Loan-to-Value) — Current debt divided by collateral value

• LLTV (Liquidation LTV) — The threshold set by the market. If LTV exceeds LLTV, the position is liquidatable.

Each market also enforces a Max LTV — the maximum ratio at which borrowing is allowed. Max LTV is set slightly below LLTV to provide a built-in safety buffer against immediate liquidation.

Health Factor

$$H=\frac{LLTV}{LTV}$$

• Health factor >= 1 — Position is healthy

• Health factor < 1 — Position is liquidatable

A position's health changes when collateral value moves (via oracle price updates) or when debt grows (via interest accrual).

Current Market Parameters

Fixed-Rate Markets

Collateral	Maturity	LLTV	Max LTV	Liquidation Penalty
PT-USDe	May 7, 2026	90%	89%	3.1%
PT-sUSDe	May 7, 2026	90%	89%	3.1%
PT-USDG	May 27, 2026	94.75%	94%	1%

Floating-Rate Markets

Collateral	Debt Token	LLTV	Max LTV	Liquidation Penalty
wstETH	USDC	89%	87%	3.4%
cbBTC	USDC	90%	88%	3.1%

The liquidation penalty is the net cost borne by the borrower when liquidated — it corresponds to the bonus received by liquidators through the LIF formula below.

Oracles

Each market is configured with an oracle that prices collateral relative to the debt asset. Fira supports three oracle types:

Oracle Type	Description	Example
Price Feed	External price feeds (Chainlink, Redstone)	ETH/USDC, BTC/USDC
Exchange Rate	Deterministic rates for wrapped or rebasing tokens	stETH/ETH
Fixed Price	Constant price — no fluctuation	USD0/bUSD0 (1:1)

Bond Token Oracle

In fixed-rate markets, Bond Tokens (BTs) are priced at face value for liquidation purposes. A Fixed-Price Oracle values 1 BT-USDC = 1 USDC, regardless of the current market discount. This means collateral is always valued in units of the underlying debt asset.

Liquidation Incentive Factor (LIF)

Liquidators receive a bonus on the collateral they seize, calculated by the LIF formula:

$$\text{LIF} = \min\!\left(\text{LIF}_{\max},\; \frac{1}{\delta \cdot \text{LLTV} + (1 - \delta)}\right)$$

Parameter	Current Value	Description
$LIF_{max}$	1.15	Maximum bonus (15% cap)
$\delta$	0.3	Sensitivity to LLTV

Higher LLTV markets produce lower LIF — the bonus is calibrated to the risk of each market.

Collateral Seized

$$Collateral_{seized}=min\left(Collateral,LIF\times\frac{Debt_{repaid}}{Price_{Oracle}}\right)$$

The liquidator repays part or all of the debt and receives collateral worth the repaid amount multiplied by the LIF. Any remaining collateral is returned to the borrower.

Bad Debt

Bad debt occurs when seized collateral is worth less than the outstanding debt after accounting for execution costs (slippage, fees, price impact). The remaining debt which is not liquidated is realized as a bad debt loss. The shortfall is socialized among lenders.

Fixed-Rate Markets

Bad debt reduces the FW wrapping rate μ(t). The modified wrapping rate μ_s(t) used for BT/CT decomposition remains at the pre-loss level, socializing the loss across LPs and token holders.

Floating-Rate Markets

Bad debt reduces the vault share price proportional to how much bad debt loss is realized post liquidation.

Fixed-Rate vs Floating-Rate Liquidations

Liquidation mechanics apply to both market types, but with key differences:

	Fixed-Rate Markets	Floating-Rate Markets
Trigger	LTV exceeds LLTV	LTV exceeds LLTV
Interest accrual	No explicit interest — cost is embedded in the BT discount	Continuous variable interest accrual increases debt over time
Maturity	Yes — positions have a defined expiry date	No — positions are open-ended
Forced liquidation	Yes — DAO can force-liquidate after maturity	No — only standard health-based liquidation
Grace period	24 hours after maturity before forced liquidation	N/A

Forced Liquidation at Maturity

Fira supports forced liquidation at maturity for fixed-rate markets, triggerable by the DAO even if a position is otherwise healthy. This is by design: when collateral reaches its maturity date, all remaining positions can be closed to enable collateral redemption. Such positions are also subject to LIF values determined per market independently of LLTV.

Maturity Grace Period

After the BT expiry date, borrowers have a 24-hour grace period to repay their debt and recover their collateral before forced liquidation becomes enforceable. During this window:

• The position is not yet eligible for forced liquidation

• Borrowers can repay via the standard repayment flow (mint BT using USDC via FW)

• After the 24-hour window, the DAO can trigger forced liquidation regardless of position health

Borrowers should close positions before the maturity date. The 24-hour grace period is a safety buffer, not a recommended strategy. Open positions past the grace period may be force-liquidated at any time regardless of their health factor.

Related

• Risk Framework — How risk is assessed per market

• Liquidation Risk — Risks specific to liquidation mechanics

• Bad Debt Risk — Bad debt scenarios and mitigation

• Whitepaper — Full mathematical treatment