In the event where, on a specific Collateral Account, the Collateral Factor reaches the Liquidation Threshold, a liquidation process takes place in order to protect lending pools from losses. The basic idea is to sell a portion of the collateral so that the proceeds can cover the loan repayment plus a reward for the Liquidator.
We consider the following example where 2 loans in Token A and Token B are collateralized by LP Tokens A/B.
If the value of the Collateral is higher than the value of the loans plus the Liquidation Reward, Securd determines the amount of collateral to deliver to the Liquidator against repaying both loans. The remaining collateral is left in the Borrower's Collateral Account.
If the value of the Collateral is lower than the value of the loans plus the Liquidation Reward, Securd will determine the amount of the loans to be repaid against delivering the entire collateral to the Liquidator. The resulting loss will be supported by both Lending Pool equally.