Liquidations

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How liquidations work

When the value of a borrower’s collateral falls and their loan-to-value ratio exceeds the 77% liquidation threshold:

1. Gondor seizes 77% of the collateral and uses it to repay the outstanding loan.
2. Simultaneously, Gondor buys the same number of opposite-outcome shares from the orderbook.
3. Gondor then merges each YES–NO pair and redeems them on Polymarket for $1 per merged pair.
4. The remaining 23% of the borrower’s collateral stays in the pool and can be withdrawn by the borrower.

Hedging with the opposite outcome instead of selling seized collateral allows us to minimize latency of the liquidation. Gondor does not charge a liquidation fee. The only impact on your PnL is the realized loss occurred.

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Supported markets

For the beta, our team manually selects the markets we support. Some markets may support only one outcome (Yes or No) if the alternative side is too illiquid. When selecting, we consider liquidity, spread, duration, resolution criteria, potential slippage and other factors.

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Exposure caps

Each market has a protocol-wide exposure cap that limits the maximum allocation at any given time. These caps are based on liquidity and other parameters and are designed to reduce the risk of liquidation cascades.

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Liquidation threshold

For every market, the maximum loan-to-value ratio is 50%, while the liquidation threshold is 77%. This buffer means a position taken at maximum borrow will only be liquidated if its collateral value decreases by roughly 35%.

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Collateral price

Gondor takes a minimum of the best bid and a TWAP as collateral price. This removes incentive to inflate prices on Polymarket and borrow against overvalued collateral, while still giving genuine borrowers a fair and accurate price.

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Pool risk profiles

Each pool is assigned one of three risk categories: Conservative, Moderate, or Growth. When a pool is created, it is assigned a category, and the corresponding parameters are applied automatically.

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Further improvements

The risk management architecture described above applies to Gondor Beta. In Gondor V1, our first publicly available product coming in 2026, users will be able to use multiple positions as a single bundle of collateral, similar to cross-margining. Diversifying collateral and pricing it appropriately will help address the remaining risks associated with borrowing against prediction-market positions. More details will be shared soon.