# Liquidations

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**This documentation is a work in progress!**
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If the[ collateralization ratio](https://kopio.gitbook.io/kopio-docs/fundamentals/cdps/..#collateralization-ratio) of the SCDP falls below the [liquidation threshold](https://kopio.gitbook.io/kopio-docs/fundamentals/cdps/..#liquidation-threshold), anyone can repay [debt owed](https://kopio.gitbook.io/kopio-docs/fundamentals/cdps/..#debt-value), seizing an equal value plus incentive from the [deposits](https://kopio.gitbook.io/kopio-docs/fundamentals/cdps/..#collateral-deposit-value). Any [protocol owned collateral](#protocol-owned-collateral) is seized before [depositor](https://kopio.gitbook.io/kopio-docs/fundamentals/cdps/scdp/deposits) assets.

The liquidation is incentivized by a configured liquidation incentive percentage for each debt asset. It increases the seized value when the asset is repaid in a liquidation. This compensates the liquidator for the effort while enabling control on the assets likely to be repaid.

The seized value is equally reduced from each depositors, eg. if a liquidation seizes **10%** of all collateral, each depositor loses **10%** of their principal deposit.

<figure><img src="https://lh7-us.googleusercontent.com/V6wkxc6Rcl3md3Sxc5zmmmWYNqqbPVoWbaF0WEtkgQqvrhinHq0U29McpWm4DZctUQjfshtWZSDJmUGPrHDHLw_wxDJ5e3uMjX1A0ghAgFtxOGf3fTalWlrUyRu6z--WGnYnvPGf25K9ycW89n7Cn9I" alt="" width="563"><figcaption><p>Example maximum liquidation with protocol owner collateral and 160% MLR.</p></figcaption></figure>

Similar to [ICDP liquidations](https://kopio.gitbook.io/kopio-docs/fundamentals/cdps/icdp/liquidations), the liquidator can arbitrarily decide which [Kopio Asset](https://kopio.gitbook.io/kopio-docs/fundamentals/kresko-assets) to liquidate and which [Collateral Asset](https://kopio.gitbook.io/kopio-docs/fundamentals/collateral-assets) to seize.

## Cover

In addition to liquidations the SCDP has another mechanism of increasing collateralization. Cover is the act of providing any whitelisted assets to balance out the Debt Index value by reducing the overall debt value.

### Cover Threshold

Threshold after which Cover is incentivized, up to Cover Threshold itself, it is above the [LT](https://kopio.gitbook.io/kopio-docs/fundamentals/cdps/..#liquidation-threshold) but below the [MCR](https://kopio.gitbook.io/kopio-docs/fundamentals/cdps/..#minimum-collateralization-ratio).

### Cover Incentive

Incentive percentage for providing Cover

#### Non-Incentivized / Incentivized

This action can be performed non-incentivized at any time. Cover Incentive is only active when the global position is under the configured Cover Threshold.

### Reasoning

Purpose of this mechanism is to add an additional layer of depositor safety before actual liquidations are needed. Depending on the whitelisted assets it can also be used to almost completely hedge out the debt composition which is an area for further investigation.

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