# Liquidations

As a position accumulates interest, its ratio between collateral and amount owed decreases over time. Eventually, it will fall under the minimum collateralization rate needed for said market, making it eligible for liquidation. This happens either because the debt has increased past a certain threshold or because the collateral value has fluctuated.

Should a borrower need to be liquidated, some of their collateral is sold off to pay back the debt. Liquidations happen in different ways on Mystic depending on how liquid the collateral is:

* Liquid - these are assets that can be traded on DEX and are thus able to be liquidated the DeFi-native way: liquidation bots. In this instance, a bot will repay the borrowed amount and receive the respective collateral plus a liquidation premium. Anyone can run liquidation bots, with Mystic itself acting as the protocol’s first liquidator.
* Semi-liquid - these tokens can be redeemed for stablecoins with their issuer, but otherwise have no secondary market liquidity. In this case, Mystic is always the liquidator, and we redeem the assets with the issuer before repaying the debt to the lenders ourselves. These liquidations range from immediate to T+2, depending on the asset issuer’s redemption process.
* Illiquid - there is no way to get liquidity from the asset. In this case, the liquidation follows the process described in structured vaults - first collateral auction and then safety module slashing.

It is important to note that liquidations on Mystic respect the underlying asset's permissions, meaning only a whitelisted user can take permissioned liquidated collateral.

**Bad debt**

In a situation where there is extreme volatility, a market's LTV might increase too quickly before it can be liquidated. In such a scenario, the borrower defaults and liquidators are not incentivized to honour the debt, and so the protocol gets bad debt. Bad debt is less likely in Mystic Finance than in other money markets, due to the stability of the underlying assets we make markets for. However, should a bad debt event occur, some lenders may not be able to withdraw their assets.


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