# Liquidations and Liquidators

A reliable liquidator ecosystem is essential for managing unhealthy borrow positions before market deterioration leads to insolvencies. We actively monitor this ecosystem through ongoing communication with Morpho's liquidation teams.

Liquidators operate through two main strategies.

1. **The flash loan approach** starts by borrowing the debt asset from a DEX, repaying the borrower's debt, claiming collateral, and finally swapping collateral back to the debt asset to close the loan.
2. **The inventory approach** starts with liquidators holding WETH or stablecoins, swapping to the required debt asset, repaying debt and claiming collateral, and then converting collateral back to their inventory asset for profit.

For liquidations to remain profitable and efficient, liquidators need:

* Low slippage when selling claimed collateral
* Low slippage when purchasing debt assets

Our risk management framework supports this ecosystem by maintaining collateral at risk below key liquidity thresholds and keeping borrowed assets within sustainable liquidation limits. These thresholds are dynamically adjusted based on current liquidity levels with conservative buffers, ensuring market stability even during significant liquidity drawdowns.


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