Can I get liquidated if I'm on a yield farm with a layer 2 protocol?
Asked 3 years ago
I've become accustomed to investing in crypto with bitcoin blockchains using layer 1 network liquidity pools. I'm someone who doesn't take too readily to changes, and although this layer 2 is said to have a faster transaction time, I'm worried that the risk of forced liquidation and losing money may be greater.
Marco Bryan
Saturday, August 06, 2022
Yes, you can get liquidated because liquidation is not based on the chain you use. When you open a leveraged position with a layer 2 protocol, the assets you deposit in the protocol act as collateral, which increases as you accumulate yields.
The collateral must exceed the amount you owe the lender (plus a margin of safety to take care of quick price swings), or the protocol may close your trade to pay back the lender – forced liquidation. You should avoid forced liquidation by depositing more funds because if you are force liquidated, 5% of your remaining position would be paid to the liquidator bot as a reward for managing your position and ensuring the lender was paid.
Please follow our Community Guidelines
Related Articles

TradFi vs DeFi: Differences and Similarities
David Akilo
March 27, 2022

The Solana Coin: Value, Longevity, Rival Coins, and More
Marcel Deer
October 31, 2022

3 Best Crypto Exchange Platforms in Singapore in 2023
Filip Dimkovski
November 1, 2022
Related Posts
Anderson Ezie
How Ethereum is Changing the Crypto Narrative
Josiah Makori
What Is the Meaning of an NFT Drop?
Anderson Ezie
Liquidity Pool vs. Staking: Which Is Better?
Filip Dimkovski
How to Create a Smart Contract on a Blockchain
Can't find what you're looking for?