In decentralized finance (DeFi), forced liquidation is the process of selling off a user’s assets in order to pay off their debt when the value of their collateral falls below a certain level.
This is typically done to prevent the user from defaulting on their loan and to protect other users and the overall stability of the DeFi platform.
Forced liquidations are often triggered when the value of the collateral falls below a certain “maintenance margin” or “liquidation threshold”.
When this happens, the DeFi platform will automatically sell the user’s collateral to pay off their outstanding debt, and any remaining assets will be returned to the user.
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