How do liquidations work?

If a borrower misses their BTC reward payment, they have up to a five day grace period to make the payment before their collateral (if any) can be liquidated by the pool delegate and repaid to the lending pools that funded the loan.

If the loan is undercollateralised, the shortfall amount is taken from the pool cover and sent into the pool to make liquidity providers whole. If the pool cover does not have sufficient funds to cover for the shortfall, the result is a loss for the pool.

All Borrowers enter a Master Loan Agreement during onboarding which enables legal enforcement.