Excess Collateral

Excess collateral refers to the portion of a liquidated position's assets that remains after the position has been closed and all obligations are met. In the context of liquidation, if a user's position is closed at a price better than their bankruptcy price, there is leftover value.

This surplus is often directed into the platform's insurance fund to build a reserve for future deficits. It acts as a positive feedback loop for the platform's financial health, rewarding the system for efficient liquidation execution.

Excess collateral is a key metric for evaluating the effectiveness of a liquidation engine. It represents the difference between the actual exit price and the theoretical bankruptcy price.