# Liquidation Process The liquidation process in OpenFi ensures that lending markets remain solvent when borrower positions fall below required collateral thresholds. Unlike crypto-native protocols, RWA-backed lending requires a hybrid liquidation framework that combines on-chain automation with off-chain redemption. *** #### 1. On-Chain Trigger * Smart contracts continuously monitor borrower positions. * Decentralized oracles (via Chainlink) provide real-time valuations for equities, gold, and money market funds. * When a borrower’s collateralization ratio falls below the liquidation threshold, the protocol automatically flags the position for liquidation. * Liquidators can initiate repayment of the borrower’s debt in exchange for a discounted share of the collateral tokens. This on-chain process mirrors DeFi-native protocols (e.g., Aave, Compound), ensuring transparency and automation. *** #### 2. Off-Chain Redemption For tokenized RWA collateral, liquidation also requires interaction with the underlying custodian or issuer: * Equities (xStocks): Tokenized shares must be redeemed or sold through the issuer’s redemption channel. * Gold (MatrixDock): Tokens may be redeemed for physical reserves or liquidated via secondary trading partners. * Money Market Funds (Asseto): NAV-based redemption occurs through the fund’s custodian, with settlement reflecting the daily NAV update. Because redemption cycles introduce settlement lag, OpenFi uses conservative risk parameters (lower LTV, higher liquidation discounts) to protect lenders during off-chain processes. *** #### 3. Hybrid Enforcement The result is a two-layer liquidation model: 1. On-chain: Immediate enforcement via smart contracts and liquidators. 2. Off-chain: Redemption or secondary market settlement of tokenized assets. This hybrid approach ensures that OpenFi can maintain trustless, automated solvency on-chain while aligning with the operational realities of off-chain financial instruments. --- # Agent Instructions: Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter: ``` GET https://open-fi.gitbook.io/rwa-backed-lending-protocol/product-rwa-backed-lending-protocol/liquidation-process.md?ask= ``` The question should be specific, self-contained, and written in natural language. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.