Automated Liquidation Logic

Definition ∞ Automated liquidation logic refers to the programmed rules within decentralized finance protocols that forcibly close a user’s collateralized loan position. This process activates when the value of the collateral falls below a predefined threshold relative to the borrowed amount. The logic ensures protocol solvency by automatically selling collateral to repay the loan, preventing bad debt from accumulating. It operates without human intervention, relying entirely on smart contract conditions.
Context ∞ The effectiveness and fairness of automated liquidation logic are frequently discussed in crypto news, especially during periods of market volatility. Understanding these mechanisms is vital for participants in lending and borrowing protocols, as sudden price movements can trigger liquidations. Protocol developers continually refine this logic to optimize efficiency and minimize cascading effects across the broader decentralized finance ecosystem.