User Liquidations

Definition ∞ User liquidations occur in cryptocurrency lending and derivatives markets when a borrower’s collateral value falls below a predetermined threshold, triggering the automatic sale of their assets to cover the outstanding debt. This mechanism protects lenders and the solvency of the platform. Liquidations are a direct consequence of market volatility and leverage. They can result in significant losses for individual users.
Context ∞ User liquidations are a frequent occurrence during periods of high market volatility, often driving further price declines and generating significant news coverage. The efficiency and fairness of liquidation engines are critical for the health of DeFi protocols and centralized exchanges. Discussions often center on the risks associated with leveraged trading and the transparency of liquidation processes.