Liquidations

Nivela’s nUSD token is a non-algorithmic, collateral-backed stablecoin, meaning every 1 nUSD is backed by more than 1 unit of collateral. Since collateral values fluctuate with the market, Nivela—like most DeFi lending protocols—uses liquidations to ensure nUSD remains overcollateralized.

Liquidation Process

Liquidation occurs when a position’s collateral value no longer sufficiently covers its borrowed amount. Each lender has a Maximum Collateral Ratio that defines the liquidation threshold. When a Collateralized Debt Position (CDP) reaches this threshold, it becomes eligible for liquidation. At this point, anyone can repay the debt in exchange for a portion of the collateral.

Isolated Lending Model

Nivela is an isolated lending protocol, meaning each CDP is treated independently. If a user has multiple CDPs, each will have its own liquidation thresholds and processes.

Key Terms

• Collateral Ratio = (nUSD Borrowed / Collateral Value). This measures the health of a loan—a lower ratio means more collateral backing the borrowed nUSD.

• Maximum Collateral Ratio: The threshold at which a CDP becomes eligible for liquidation. Set per lender.

• Liquidation Fee: A bonus portion of collateral awarded to the liquidator as compensation for risk (e.g., slippage, gas fees). This fee is deducted from the borrower’s collateral.