Liquidation: A Worked Example

Numbers make this concrete, so here is the whole thing with real dollar amounts.

Setup

You deposit 100 shares of NVDA at

20, which is

2,000 of collateral, and you borrow the maximum: $6,000, or 50% LTV. NVDA's liquidation line sits at 58.8% LTV, an 8.8% cushion above where you borrowed, so your Health Factor starts at about 1.18.

Week 1

NVDA slips 8% to

10.40. Your collateral is worth

1,040, your debt is still $6,000, and your LTV has risen to 54.3%. The Health Factor is drifting down, to about 1.08, but you are still clear of the line. Nothing happens.

Week 2

NVDA falls again, to

02. Your collateral is now

0,200 and your LTV reaches 58.8%. The Health Factor touches 1.00, and a partial liquidation kicks in.

Liquidation

The protocol does not dump the whole position. It sells just enough to pull you back to safety, roughly 21 shares at

02 (about

,184). NVDA's liquidation fee, 8.8%, comes out of that (about

92), and the rest pays down your debt. You come out holding about 79 shares worth $8,016 against roughly $4,000 of debt, your LTV back near 50% and your Health Factor restored to about 1.18.

Key takeaway

You lost about 21 shares, not all 100. The protocol sold the least it could to stabilize the position, and if NVDA recovers from here you still own the other 79. It is also the case for leaving yourself room: had you borrowed $4,000 instead of the full $6,000, this same drop would not have triggered a liquidation at all.