> For the complete documentation index, see [llms.txt](https://docs.concordia.systems/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.concordia.systems/platform-spec/risk-framework/rebalancing-liquidation.md).

# Rebalancing (Liquidation)

**Basic Concept of Rebalancing**

A portfolio may be forcefully rebalanced if it has insufficient equity.  Rebalancing a portfolio involves taking over a portion of its debt and collateral, with the effect of increasing its health.

A portfolio's health is a ratio of its total risk over its total collateral.  To calculate total risk, the market value of its liabilities are summed and added to a quantity of risk.  In this formulation, "risk" is just the required equity in a a portfolio -- that is, the value of collateral in excess of the value of liabilities.

$$
HealthRatio = \frac {Liabilities + Risk} {Collateral}
$$

For a portfolio to be considered "healthy", its total collateral value must be greater than its liabilities added to the portfolio specific amount of risk.

$$
Collateral \gt Liabilties + Risk
$$

**Dynamic Close Rebalancing**

The Concordia liquidation mechanism is one of the most vital components ensuring the protocol's health. Creating a successful liquidation mechanism must consider several primary concepts: 

1. Preventing toxic debt
2. Ensuring adequately capitalized and decentralized liquidators 
3. Other Design Factors. 

\*Note that neither is mutually exclusive and centered around incentives. 

**Terms**

* **Bounty:** Also referred to as Liquidation Fee or Liquidation Spread. The discount is offered on collateral to liquidations to repay parts of the loan.
* **Close-Factor:** the maximum amount of debt that can be closed out and repaid in a single liquidation, eventually equal to 1 in the dynamic close outlined below. 


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