Glossary · S
Soft Liquidation
A gradual liquidation mechanism introduced by Curve's crvUSD lending system (LLAMMA). Instead of a sharp all-or-nothing liquidation when a position falls below a threshold, soft liquidation converts collateral incrementally to the borrowed stablecoin as prices fall through a liquidation range, and re-converts back if prices recover. This reduces the brutal 'cliff edge' liquidation experience of traditional DeFi lending.
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How Soft Liquidation works in practice
Soft liquidation sells collateral gradually as the price falls, rather than closing a large share of the position at a single threshold. It converts a cliff edge into a slope, so a brief dip costs a small amount instead of triggering a full liquidation penalty.
Worked example
As collateral price falls through a defined band, the mechanism sells small increments into it. If the price recovers, it buys back. A borrower may pass through the band and return with only a modest loss, where a conventional design would have liquidated a chunk of the position outright.
Figures are illustrative and chosen to be checkable, not live market data.
The mistake that costs people money
The gradual selling is not free — each pass through the band realises a loss, so repeated volatility grinds the position down even if the price ends where it started. Soft liquidation reduces cliff risk, it does not remove liquidation cost.
Soft Liquidation: common questions
- What is Soft Liquidation?
- A gradual liquidation mechanism introduced by Curve's crvUSD lending system (LLAMMA). Instead of a sharp all-or-nothing liquidation when a position falls below a threshold, soft liquidation converts collateral incrementally to the borrowed stablecoin as prices fall through a liquidation range, and re-converts back if prices recover. This reduces the brutal 'cliff edge' liquidation experience of traditional DeFi lending.
- How does Soft Liquidation work in practice?
- Soft liquidation sells collateral gradually as the price falls, rather than closing a large share of the position at a single threshold. It converts a cliff edge into a slope, so a brief dip costs a small amount instead of triggering a full liquidation penalty.
- Can you give an example of Soft Liquidation?
- As collateral price falls through a defined band, the mechanism sells small increments into it. If the price recovers, it buys back. A borrower may pass through the band and return with only a modest loss, where a conventional design would have liquidated a chunk of the position outright.
- What do people get wrong about Soft Liquidation?
- The gradual selling is not free — each pass through the band realises a loss, so repeated volatility grinds the position down even if the price ends where it started. Soft liquidation reduces cliff risk, it does not remove liquidation cost.