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Token Liquidation

Definition ∞ Token Liquidation is the process of forcibly selling digital assets held as collateral in a decentralized finance loan or margin trading position. This event typically occurs when the value of the collateral falls below a predefined threshold, triggering an automatic sale to repay the outstanding debt. It is a mechanism designed to maintain the solvency of lending protocols.
Context ∞ Token liquidation events are a common feature in volatile cryptocurrency markets, frequently reported in financial news as prices fluctuate. Discussions often center on the design of liquidation mechanisms, their impact on market stability, and strategies for users to manage liquidation risk in decentralized finance protocols.

A complex spherical structure, resembling modular blockchain architecture, is partially open, revealing intricate internal components. Its fragmented white outer shell suggests a distributed ledger or network layers. Within, vibrant blue granular transaction data or a liquidity pool intersperses with clear, cubic cryptographic hashes or validated blocks. A central white sphere, symbolizing a secure enclave or hardware wallet, features a metallic access control mechanism, potentially a multi-signature key or cold storage interface, emphasizing robust cryptographic security.

→Admin Key Security

→Forensic Analysis

→DeFi Lending

CrediX Lending Protocol Drained via Compromised Multi-Signature Admin Key

The failure to secure the protocol's multi-signature access control enabled an attacker to mint unbacked assets, resulting in a $4.5M liquidity drain.