Liquidation is the protocol’s safety mechanism. If a position’s debt grows too large relative to its collateral, part of the collateral is sold so that both the position and the protocol stay solvent. Here is what that means in practice.
When can a liquidation happen?
Two conditions are monitored continuously:
Interest must stay covered. Accrued interest needs to be paid down over time so it does not eat into the position’s health.
The position must stay above its liquidation threshold. If the leased asset falls far enough that your liability approaches the maximum allowed, the position becomes unhealthy.
To avoid overreacting to momentary price dips, the trigger uses a smoothed (moving-average) price rather than a single tick.
What actually happens
Liquidations on Nolus are partial by design. The protocol sells only as much collateral as it needs to bring the position back to a healthy state, so the position stays open at a reduced size. Only if the entire amount is required does a full liquidation occur, and in that case the position is closed.
Nolus also runs a Market Anomaly Guard (MAG). Before executing a liquidation swap, the protocol simulates the trade. If the expected proceeds fall below a safety threshold relative to the reference price, for example during a flash crash or a DEX liquidity anomaly, the liquidation is paused and retried under better conditions. If the price recovers above the trigger threshold in the meantime, the liquidation is canceled entirely.
How to avoid liquidation
Watch your position’s health in the app, especially in volatile markets.
Repay part of the loan to lower your liability. See Repay or Close a Margin Position.
Use protective orders such as stop-loss where available, so you exit on your own terms before the liquidation threshold is reached.
Size positions conservatively. A lower leverage multiple leaves more room for the market to move against you.
Where to read more
For the broader risk picture, see Understanding the Risks Involved. The full technical specification of the liquidation engine and risk framework lives at docs.nolus.io.