About defi liquidate position.

[GHexxerBrdv]

Hey every time i jump into defi code base i got confusion of liquidation and liquidity.

I know that liquidity is provided asset to the pool by liquidity provider. But i am not getting this funda of liquidate position.

First of all what is this ? And why we need to liquidate the position, And whom position by which parameter?

Suppose in lending and borrowing or in the protocol where the user has provided liquidity. Suppose i have borrowed some asset or i have provided liquidity. Then in which situation i will be liquidate my position, And why?
And who will be liquidate my position?

I hope you have understood my question. Please help me along with this.

[EngrPips]

Hello @GHexxerBrdv, I think you should see the Decentralized Stable Coin lesson of the advanced foundry section on Cyfrin Updraft. Patrick did a lot of work explaining these concepts in that lesson.

[satyam429]

Highly recommended.

[juliancabmar]

Hi. let me give you a hypothetical example:

1. Bob want to lend his 10 ETH for obtain a reward for it (fee), so send his 10 ETH to a lending protocol's pool. Here Bob is the "liquidity provider".
2. Now the lending pool have a "liquidity" of: his previous balance + 10 ETH
3. Alice want to take borrow 5 ETH from the lending pool, so send 13,000 USDC as "collateral" to the pool and receive the 5 ETH
4. The time pass, and the accumulated interest too, so now Alice have to pay 15 ETH for recover his 13,000 USDC of collateral.
5. After a point, the ratio Collateral/Debt is too small (too many deb in comparison to the collateral) reaching a lower limit called "liquidation ratio".
6. Here, the protocol "trigger" a process know how "liquidate position". This consist to allow that other users (called "liquidators") will can pay the Alice debt (with a discount) and get her 13,000 USDC of collateral.

Of course this is a very minimalist example, but I hope that this can be useful for you to understand some of the terminology and roles in Defi.

[GHexxerBrdv]

Yeah got it. Thanks buddy.

[satyam429]

Bob deposits 10 ETH into a lending pool, becoming a liquidity provider. Alice borrows 5 ETH by depositing 13,000 USDC as collateral. As time passes, her debt grows due to interest. If her collateral-to-debt ratio drops below the liquidation threshold, the protocol allows liquidators to repay her debt and claim her collateral at a discount.

[EngrPips]

Fair enough.