Liquidation is a key part of how Jupiter Lend maintains the safety and stability of the protocol.
When a user’s borrowing position becomes too risky, meaning the value of their collateral falls relative to their debt, the protocol automatically sells just enough of the collateral to repay part or all of the loan and bring the position back to a healthy state.
How liquidation works
Each position on Jup Lend is assigned a debt-to-collateral ratio, which measures the size of your debt compared to the value of your collateral.
When this ratio exceeds a vault’s Liquidation Threshold (LT), the position becomes eligible for liquidation.
To make the process efficient, Jup Lend uses a slot-based approach. Positions with similar risk levels (similar ratios) are grouped into “slots.” If market conditions change and one slot crosses its liquidation threshold, all positions within that slot are processed together in a single, optimized transaction.
This allows liquidations to be handled faster, more efficiently, and with less impact on the market.
Once liquidated, the remaining positions are automatically rebalanced into the next slot that matches their new ratio.
Partial liquidations
Unlike traditional DeFi systems where an entire position might be liquidated, Jup Lend only liquidates the minimum necessary amount to restore the account’s health.
This partial liquidation model reduces the risk of large sell-offs and prevents cascading liquidations, where one event triggers another, helping stabilize markets even during high volatility.
Liquidation penalties
When a position is liquidated, a penalty percentage (depending on the vaults) is applied only to the portion of the position that is actually liquidated, not on the entire collateral. This penalty rewards liquidators for helping to maintain system stability.
As a result, users experience significantly smaller losses even in liquidation events.
Debt to Collateral Ratio
On Jup Lend, we assess your risk using the Debt to Collateral Ratio, which is your debt divided by the value of your collateral. The maximum percentage is derived from the collateral's Loan to Value (LTV) Ratio.
Here's an example to help you understand how the Debt to Collateral Ratio and Liquidation Threshold determine your Risk Ratio:
- Let’s say you have 20 SOL worth $4,000, and its Liquidation Threshold is 75 %:
You borrow $1,000 USDC against a collateral vault worth $4,000 → 25 % Collateral Ratio.
The position would display: 25 % / 75 %
- If the value of SOL were to fall to $100 each:
Your collateral is now worth $2,000, while your borrowed amount remains $1,000 → 50 % Collateral Ratio.
The position would display: 50 % / 75 %
- Let’s say you then remove $500 worth of SOL from your vault:
Your remaining collateral is now worth $1,500, with the same $1,000 borrowed → 66 % Collateral Ratio.
The position would display: 66 % / 75 %