> ## Documentation Index
> Fetch the complete documentation index at: https://docs.axiosfinance.xyz/llms.txt
> Use this file to discover all available pages before exploring further.

# Collateral & Liquidation

> Understanding how Axios protects lenders

## What Is Collateral?

**Collateral is like a security deposit.**

When you borrow, you must put up more value than you're borrowing. This protects the lender.

**Example:**

* You borrow: \$10,000 USDC
* You put up: \$15,000 worth of ETH

If you don't pay back the loan, the lender gets your ETH. This is why lenders are willing to lend to strangers on the internet.

## What Is Liquidation?

**Liquidation is when your collateral gets automatically sold to repay the lender.**

This happens in two situations:

### Situation 1: You Miss Your Repayment Deadline

If you borrow for 30 days and don't pay back within 12-24 hours after the deadline, anyone can trigger a liquidation. Your collateral is sold, the lender gets paid, and you lose your collateral.

### Situation 2: Your Collateral Value Drops

Crypto prices are volatile. If you put up $15,000 of ETH as collateral, but ETH crashes and your collateral is now only worth $11,000, it's not enough to cover the \$10,000 loan anymore.

**When collateral drops too much, liquidation happens automatically.**

**Real Example:**

* You borrow: 10,000 USDC
* You put up: 15,000 USDC worth of ETH (1.5x collateral ratio)
* ETH price drops 30%
* Your ETH is now worth: 10,500 USDC
* This triggers liquidation (you're below the safety threshold)

**What happens in a liquidation:**

* Your ETH collateral gets sold
* Lender receives: 10,200 USDC (their 10,000 + 2% bonus)
* Person who executed liquidation: 70 USDC (0.7% fee)
* Axios protocol: 30 USDC (0.3% fee)
* You receive: Whatever is left (roughly 200 USDC in this example)

> \[!WARNING]
> Keep your collateral healthy. If it drops too much, you lose it.