> For the complete documentation index, see [llms.txt](https://nebula-18.gitbook.io/nebula/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://nebula-18.gitbook.io/nebula/tech-overview/nebula-technology-overview/risk-management-and-security/liquidation-mechanisms.md).

# Liquidation Mechanisms

To prevent losses from under-collateralized loans, Nebula employs automated liquidation systems.

#### **Liquidation Triggers**

When the value of a borrower’s collateral falls below the required threshold, their position becomes eligible for liquidation.

#### **Liquidation Process**

* A portion of the borrower’s collateral is sold to repay the loan.
* This stabilizes the protocol’s liquidity.

#### **Liquidation Penalties**

* Borrowers incur penalties for under-collateralization.
* Part of the penalty is distributed to **liquidators** as an incentive and to the **insurance fund** for added protection.