Two thresholds, not one
Silo v3 (launched March 2026) is the first major money market to route liquidations through two different mechanisms depending on how far underwater a position falls, instead of one fixed liquidation bonus like Aave or one auction curve like Euler v2. Compare against a standard single-threshold position on the DeFi health factor calculator or the older isolated-market design on the Silo Finance calculator.
How the D-LT / CDS-LT routing and fee split work
Each Silo v3 market sets two immutable thresholds on the collateral asset's LTV: the DEX Liquidation Threshold (D-LT) and a higher Collateral-Debt Swap Threshold (CDS-LT). While LTV sits below D-LT the position is solvent. Once LTV crosses D-LT, the position becomes liquidatable through the normal route — a liquidator repays debt and receives seized collateral to sell on a DEX. If LTV keeps rising past the higher CDS-LT (or DEX liquidity for that collateral is thin, fragmented, or temporarily gone), Silo switches to an internal Collateral-Debt Swap: the protocol converts collateral into the debt asset directly, without needing any external DEX, so lenders are made whole regardless of on-chain liquidity conditions.
The fee itself works the same in both routes. Per Silo's own documentation example: a 20% liquidation fee on a $1,000 debt position means the liquidator seizes $1,200 worth of collateral share tokens — $1,000 covers the debt itself, and of the remaining $200 fee, lenders keep 80% ($160) as compensation for the risk they carried, while the liquidator keeps 20% ($40) as their incentive to act. That means lenders receive $1,160 total and the liquidator nets $40 profit on the $1,200 they handled.
This is also why Silo frames liquidations as a second yield source for lenders on top of interest, not just a loss-prevention mechanism — the "spread" between the D-LT/CDS-LT design point and the actual liquidation price flows mostly to whoever is supplying the asset being borrowed. Source: docs.silo.finance liquidation module and the March 2026 Silo v3 announcement — exact D-LT/CDS-LT values and fee percentages are set per market, so treat the defaults above as an illustrative model, not any specific live Silo v3 market's parameters.