> For the complete documentation index, see [llms.txt](https://docs.looputo.xyz/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.looputo.xyz/mechanism/liquidation-protection.md).

# Liquidation Protection

Looputo's automation system against liquidation risk.

A leveraged looping position is liquidated by price, and collateral can fall or lose its peg faster than a manual response allows. Liquidation Protection monitors the collateral price continuously and keeps positions clear of the liquidation threshold, with no action required from users.

### How It Works

As the collateral price falls, Liquidation Protection reduces leverage to keep the position away from its liquidation threshold. When the price recovers, leverage is restored to the original target, so the position returns to its intended exposure after the move.

<figure><img src="https://1517612113-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FiyPrXoSfRikirWhKbEx7%2Fuploads%2Fgit-blob-35ed84940b60964e098a8652d81ff41d80880e3a%2Flp-price-response.jpg?alt=media" alt="As the collateral price dips and recovers, only User C at 14x is deleveraged in steps and then restored to target; User B at 7x and User A at 3x are untouched."><figcaption></figcaption></figure>

The keeper monitors price directly and acts on-chain, so protection runs continuously without users watching a dashboard or running a bot.

### Deleveraging Is Targeted

When the pool needs to reduce risk, Liquidation Protection deleverages only the positions carrying the highest leverage and leaves the rest as they were.

* Lower-leverage positions are untouched: collateral, debt, equity, and leverage unchanged.
* The cost of deleveraging falls on the positions whose leverage created the risk.
* Higher-leverage positions are reduced more, automatically.

<figure><img src="https://1517612113-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FiyPrXoSfRikirWhKbEx7%2Fuploads%2Fgit-blob-4f69b870670a44ac3fb601b63ac31c57abb93896%2Flp-targeted-deleverage.jpg?alt=media" alt="Before and after deleveraging: User C above the leverage ceiling is reduced from 14x to 10x; User A at 3x and User B at 7x are unchanged."><figcaption></figcaption></figure>

A conservative position is not charged for an aggressive one. This follows from tracking each user with their own shares; see [Shared Pool Architecture](/mechanism/shared-pool-architecture.md).

{% hint style="info" %}
Liquidation Protection responds to price. Its counterpart, [Negative Carry Protection](/mechanism/negative-carry-protection.md), responds to negative carry. The two are kept separate because they act on different signals, and both run continuously.
{% endhint %}