Liquidation grace periods
OTC agreements can be deployed with a delayed-liquidation gate. The gate gives borrowers a grace period after a position becomes unhealthy, during which they can repay debt or add collateral before any liquidator can act.
Each delayed-liquidation gate is deployed with its own immutable grace and liquidation periods (between 60 seconds and 72 hours). Lenders may require a lower LLTV or higher rate to offset the additional price risk.
How it works
When a position becomes unhealthy, any keeper can call the gate to start the grace period. The borrower then has the configured duration to add collateral or repay debt before any liquidator can seize collateral. After the grace period ends, a liquidation period opens during which liquidators can act. Only one grace + liquidation window can be active at a time per borrower; once the full window elapses, a fresh call is required to restart.
If a priority liquidator was specified when the grace period started, they have exclusive access for up to one minute at the start of the liquidation period before it opens to other callers.
After maturity, liquidations on the agreement proceed immediately regardless of grace or liquidation period state. See post-maturity liquidations.
Restoring health during the grace period
Position health is re-checked at the moment of liquidation, not when the grace period was started. If the borrower restores health during the grace period and the position stays healthy through the liquidation period, no liquidation occurs, even though the gate's timing window is still open. A fresh keeper call is required to restart the grace period if the position becomes unhealthy again later.
Filling offers on an agreement with a delayed-liquidation gate exposes lenders to additional price risk. If collateral value falls sharply during the grace period, bad debt becomes more likely. In addition, the grace period must be started onchain by a keeper. Until that call lands, no liquidation can happen even if the position is already unhealthy.
For a technical breakdown of the delayed liquidation mechanism, see DelayedLiquidationGate.