Can I be liquidated if I never touch the wallet?

Yes. Market moves and accruing borrow interest can push a position under water without any new transaction from you.

Is liquidation the same as a margin call?

Conceptually similar — forced deleveraging — but DeFi liquidations are usually automatic via smart contracts and third-party keepers, not a human broker call.

Do liquidators need my permission?

No. By borrowing, you accept protocol rules that allow keepers to repay debt and seize collateral when thresholds are breached.

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Answers · Q&A

What happens when you get liquidated?

Liquidation is an automated process that closes or partially closes your undercollateralised loan by selling collateral to repay debt plus a penalty. Decentralized Finance Publication explains health factors, keepers, and why prices can gap — educational only, not a borrowing recommendation.

Last updated 17 July 2026

Why liquidations exist

Overcollateralised lending protocols (Aave, Compound, Morpho markets, and others) require collateral value above a threshold relative to debt. If collateral prices fall or debt grows (interest), your position’s health factor can drop below 1.

Without liquidations, the protocol could accumulate bad debt that socialises losses to suppliers. Liquidators (keepers) are economically incentivised to repay debt in exchange for discounted collateral.

What you typically lose

You lose some or all of the liquidated collateral, pay a liquidation bonus/penalty baked into protocol parameters, and may retain leftover collateral if only a partial close occurs. Exact mechanics differ by protocol and market.

Oracle updates, L2 sequencer delays, and thin liquidity can worsen fills versus the mid price you saw earlier. Stablecoin depegs can also hammer health factors when debt or collateral is the depegging asset.

Risk management literacy

Borrow less than the maximum, monitor health factors, understand oracle sources, and avoid treating volatile collateral as if it were cash. Self-repaying or looping strategies amplify liquidation risk.

Decentralized Finance Publication covers mechanisms so readers can evaluate trade-offs. Nothing here is advice to open a leveraged position.

FAQ

Frequently asked questions

Can I be liquidated if I never touch the wallet?: Yes. Market moves and accruing borrow interest can push a position under water without any new transaction from you.
Is liquidation the same as a margin call?: Conceptually similar — forced deleveraging — but DeFi liquidations are usually automatic via smart contracts and third-party keepers, not a human broker call.
Do liquidators need my permission?: No. By borrowing, you accept protocol rules that allow keepers to repay debt and seize collateral when thresholds are breached.