Liquidation
The forced closing of a leveraged position by an exchange or protocol when the collateral behind it falls too low.
On a derivatives venue, a position is liquidated when its equity falls under the maintenance margin measured against the mark price, and the venue's engine closes it, often charging a penalty and absorbing any residual loss through an insurance fund. In lending protocols, a third-party liquidator repays part of the borrower's debt and receives collateral at a discount, which is the incentive that keeps the system solvent without a central operator. Unlike a traditional broker's margin call, which gives a client time to post funds, crypto venues generally liquidate automatically within seconds because markets run continuously and there is no business day in which to respond. Liquidations are reported per venue and are frequently undercounted, since some venues publish only a throttled feed.
En pratique
In a lending protocol, anyone can act as a liquidator: they repay part of the loan and receive collateral worth slightly more than the repayment as the incentive fee.
Le malentendu courant
Liquidation is not a request for more collateral; on most venues there is no margin call at all and the position is simply closed.