The Concept of Liquidation

When opening a leveraged position on Blueberry, users borrow funds up to 6 times the value of their initial capital, which serves as collateral. As yields accumulate (minus borrowing interest), the collateral is expected to grow. However, the collateral value must always exceed the borrowed amount plus a safety margin to account for potential price fluctuations or high transaction fees (gas).

If the collateral falls below the required threshold, the protocol initiates a liquidation process to close the position and repay the loan to the lenders. Liquidation results in the remaining value of the position being awarded to the liquidator, compensating them for ensuring lenders are reimbursed.