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Liquidations protect lenders when a borrower’s position breaches covenants or collateral thresholds. Instead of manual intervention or OTC resolution, the system executes predefined recovery logic directly on-chain. Each Series remains fully isolated, ensuring that no event in one Series impacts another. For instance, if a borrower fails to maintain collateralization requirements or misses a coupon payment, the Series’ liquidation module activates automatically—freezing borrower allocations, valuing collateral, and initiating recovery through approved exchange venues.

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How It Works

Each liquidation follows five standardized steps:
  1. Trigger: A covenant breach (e.g., under-collateralization, missed coupon, or hard-halt) activates the liquidation module for that Series.
  2. Freeze and Price: The borrower’s Series allocation is frozen. The pricing engine retrieves reference prices from approved exchanges to determine the collateral’s market value.
  3. Liquidate Collateral to BTC: The collateral is liquidated and converted to BTC through whitelisted venues or counterparties. All proceeds are returned directly to the Series vault.
  4. Record Recovery: The vault updates Series metrics in real time to reflect recovered BTC and new collateral ratios.
  5. Report and Audit: Every liquidation event emits on-chain logs with timestamps and recovery ratios, allowing lenders, auditors, and governance to verify results in real time.
The liquidation process is fully automated, verifiable on-chain, and designed to maintain solvency and transparency without human intervention. To see how this process functions in practice, consider the following example.

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Example: BTC Liquidation

Suppose a borrower’s collateral ratio falls below the required 120% threshold following a sharp market move. Nexio’s risk engine automatically freezes the borrower’s Series allocation, retrieves live pricing data from approved oracles, and liquidates collateral through whitelisted venues. Proceeds are returned directly to the Series vault, restoring compliance with Series parameters.