# Liquidation

<figure><img src="/files/gm07X59YwclTwqPmecFK" alt=""><figcaption></figcaption></figure>

## Basic Concepts

### **LTV ( Loan to Value)**

According to the liquidity and security of different assets, different liquidation threshold are granted. For example, the liquidation threshold of BTC is 75%. You can check the LTV on markets.

For example, if the liquidation threshold for BTC is 75%, then the BTCs of $10,000 can be credited as $7,500.&#x20;

### Loan Limit <a href="#loan-limit" id="loan-limit"></a>

Loan limit refers to the maximum amount of the loan calculated from the liquidation threshold of users’ collateral. It results from combining the total value of all assets in the account. When the user converts the deposits to collateral, the user can increase the loan limit.

`Loan limit = ∑ (market value of collaterized assets * LTV)`

### When liquidation happens?

### Loan Utilisation / Health

If the loan utilisation ratio is close to 100%, liquidation may happen.

In order to avoid the liquidation risk caused by the daily price fluctuation of your assets, Torches protocol has set a safety line of 90%. The safety line is set across all assets.

**Example**

Suppose you have $10,000 BTC and 10000 USDT collateralised in your account.

`Loan Limit: 10000 * 75% +10000 * 80%= 15500`

`Safety line : 15500 x 90% = 13950`

$1550 is reserved as a buffer for the price fluctuation.

### Liquidation Incentive

When a user’s account is pending liquidation, anyone can buy the collateralised asset at a certain discount, which is a reward for the liquidator and also a penalty for the borrower.  Different liquidation penalty applies.

Liquidators can select and purchase any asset in the account but cannot purchase more than 50% of the total assets at a time. If the account cannot be restored to a normal state after one liquidation, more liquidations can be performed until loan utilisation rate drops below 100%.

<table data-header-hidden><thead><tr><th width="150"></th><th></th><th></th></tr></thead><tbody><tr><td>ASSET</td><td>LTV( loan to value ratio)</td><td>Liquidation Incentive</td></tr><tr><td>KCS</td><td>40%</td><td>20%</td></tr><tr><td>USDC</td><td>80%</td><td>10%</td></tr><tr><td>USDT</td><td>80%</td><td>10%</td></tr><tr><td>ETH</td><td>75%</td><td>10%</td></tr><tr><td>BTC</td><td>75%</td><td>10%</td></tr></tbody></table>

[The tutorial of how to avoid liquidation](https://docs.google.com/document/d/1EhdLx1dlmqj4v86W-FU1A5jmQciao9lPiFq76u-h3YM/edit?usp=sharing)


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