TL;DR
Liquidation occurs when a leveraged or collateralized position falls below the required collateral ratio, triggering automatic sale of your collateral to repay the debt.
When you borrow against collateral on a lending protocol (e.g., deposit SOL, borrow USDC), you must maintain a minimum collateral ratio (e.g., 125%). If SOL’s price drops and your ratio falls below the threshold, the protocol allows liquidators (bots) to repay part of your debt and seize your collateral at a discount. The discount (liquidation penalty, typically 5-15%) is the liquidator’s profit and your loss.
Kamino, MarginFi, and Solend all use liquidation to protect their lending pools. For perps platforms like Jupiter Perps, liquidation happens when your margin falls below the maintenance requirement. Solana’s fast block times mean liquidations happen quickly — within seconds of the threshold being breached. This leaves less time to add collateral compared to Ethereum where you might have minutes.
Keep your collateral ratio well above the minimum (200%+ for safety). Set up alerts for when your position approaches liquidation levels. Have funds ready to add collateral quickly. Use conservative leverage — being liquidated at 10x leverage on a 3% dip is more common than people think. Some protocols offer “self-repaying loans” where yield from your collateral gradually pays down the debt, reducing liquidation risk over time.