Liquidations

the lower the collateral ratio for your short position the higher the liquidation risk kvadrat protocol automatically marks short positions below the safe collateralization threshold (130%) as ones to be liquidated (we use oracle prices to compute it meaning the input is bitcoin price) the liquidation process takes place in the following steps we mark the burrow (a deposit that holds the tez collateral for a short kvbtc position) as liquidation bound third party liquidators step in to make money on the spread between the price at which they acquire the right to liquidate the burrow and the market price of the collateral the burrow gets sliced this means that instead of liquidating burrow all at once, we do it on a piece by piece basis (to minimize the liquidity impact) slice size is bound from above by 5% of the total burrow size (it also can't exceed the price of 1 btc) an auction commences then in the first stage of it, we have a descending price auction from the market value of the collateral until we observe the first bid for the slice n after it is registered, the auction moves on to the second stage one where we have ascending prices over competitive bids the last highest big must lead for 20 blocks or 20 minutes finally, the winner of the second stage is determined (highest bidder), and he obtains the right to unwind the slice at market prices then the process repeats for the next slice of the burrow liquidators benefit from the spread between the price at which they acquire the right to unwind the slice and the market prices in exchange for this, they take on the market risk if the market price of tez collateral falls by a lot in the time between buying the slice and selling it, the liquidators will face a loss on their investment