# On-Chain Liquidation Engines ⎊ Area ⎊ Resource 2

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## What is the Mechanism of On-Chain Liquidation Engines?

On-chain liquidation engines are smart contract protocols designed to automatically close undercollateralized positions in decentralized lending and derivatives markets. When a borrower's collateral value falls below a predefined threshold, the engine triggers a liquidation event. This process typically involves selling the collateral to repay the outstanding debt, often executed by external liquidators who receive a fee.

## What is the Dynamic of On-Chain Liquidation Engines?

The efficiency of on-chain liquidation engines is heavily dependent on network conditions and market microstructure. During periods of high volatility, network congestion can delay liquidation execution, leading to bad debt accumulation. The speed and transparency of these engines are critical for maintaining protocol solvency.

## What is the Risk of On-Chain Liquidation Engines?

While automation reduces counterparty risk, on-chain liquidations introduce new risks related to gas price volatility and oracle manipulation. High gas fees can make liquidations unprofitable for smaller positions, while manipulated price feeds can trigger incorrect liquidations. These risks require careful calibration of liquidation thresholds and robust oracle design.


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## [Order Book Matching Engines](https://term.greeks.live/term/order-book-matching-engines/)

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**Original URL:** https://term.greeks.live/area/on-chain-liquidation-engines/resource/2/