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# Liquidation

Liquidations occur when borrow balances exceeds the amount allowed by the collateral factor.

### Account health

Lodestar uses a parameter named "health" to view the overall standing of an account, which is described by this equation:
$TotalCollateralValueInETH ÷ TotalBorrowValueInETH$
The collateral value is given by the value of all collateral supplied by an account. The formula for calculating it is shown below:
$lTokensHeld × ExchangeRate × CollateralFactor$
For each asset supplied the total collateral value is converted to be denominated in ETH. The ETH denominated sum of these values gives the total collateral value in ETH.
Similarly the total borrow value in ETH can be calculated by converting the borrow balance of each asset borrowed by an account to be denominated in ETH and summing them up.

### Keeping a good standing

A borrowing account becomes insolvent when its health factor falls below 1, and at which point the account is subject to liquidation. When an account becomes insolvent, other users can repay a portion of the account's outstanding borrow balance in exchange for a portion of its collateral, with a liquidation incentive of 8%.
The liquidation incentive means that liquidators receive the borrower’s collateral at an 8% discount to market price. 2.8% of the liquidated collateral is retained by the protocol in the reserves for the underlying asset. This is done to incentivize liquidators to keep the platform healthy and to bolster protocol reserves.
Having your account liquidated will result in losing a portion of your collateral.
To keep an account in good standing, the user needs to prioritize keeping their account above a health factor of 1.0. Lodestar recommends targeting a health of 1.5 or more with volatile postions and monitoring the health of an account closely, particularly in extreme market conditions.

### Liquidations

#### Liquidators

Liquidators can run the LiquidateBorrow function to liquidate insolvent accounts. Liquidators pass the arguments containing the accounts address, the amount of the borrowed asset to be repaid and converted into collateral, and the address of the lToken currently held as collateral by the borrower that the liquidator wants to sieze. The amount used in the field RepayAmount is a uint denominated in the units of the underlying borrowed asset.

#### Close Factor

The protocol has a Close Factor set to 0.5, meaning that in one liquidation transaction a maximum of 50% of a users borrow balance can be liquidated. If a user's account is still insolvent after liquidation, the account can be liquidated again until the account is no longer insolvent. No more than 50% of their current borrow balance in a single asset can be liquidated at a time.