How To Maximize Yield While Managing Liquidation Risks in 2025
Decentralized Finance (DeFi) has revolutionized borrowing, lending, and yield generation, but it comes with its own risks — liquidations being one of the most critical. Collateralized Debt Position (CDP) protocols, like Preon Finance, use liquidations to maintain system solvency, ensuring that every borrowed stablecoin remains fully backed by collateral. However, Preon introduces a smoother, more predictable system while unlocking lucrative yield farming opportunities for users.
Let’s dive into how liquidations work in DeFi, how Preon’s unique Stability Pool mitigates risk, and how users can maximize yield farming with $STAR and $PREON while keeping their assets safe.
Understanding Liquidations in DeFi
Traditionally, when a borrower’s Loan-to-Value (LTV) ratio surpasses the liquidation threshold, their collateral is forcibly sold to cover outstanding debt. This prevents undercollateralization but can be highly disruptive, causing cascading liquidations across DeFi markets.
How Traditional Liquidations Work
1️⃣ LTV Surpasses the Liquidation Threshold → A decline in collateral value makes the loan unsafe.
2️⃣ Automatic Liquidation → Smart contracts sell collateral to repay the outstanding debt.
3️⃣ Debt Repayment & Asset Loss → Borrowers lose their collateral, often at a discount to buyers.
This rigid system can wipe out borrower positions rapidly, leading to significant losses in volatile markets.
How Preon’s Liquidation Model Protects Users
Preon Finance removes the unpredictability of liquidations with its Stability Pool, which serves as the first line of defense against forced liquidations.
How Preon’s Stability Pool Absorbs Liquidations
- Users deposit $STAR into the Stability Pool, securing their assets while earning rewards.
- When a Nebula Vault becomes undercollateralized, the Stability Pool absorbs the debt, rather than triggering an immediate market sell-off.
- Stability Providers receive liquidated collateral at a discount, turning liquidations into an opportunity instead of a loss.
- If the Stability Pool lacks enough $STAR, the protocol redistributes collateral and debt to other vaults based on their LTV.
This creates a self-sustaining, risk-mitigated liquidation model, ensuring borrowers have a safety net while Stability Providers earn lucrative rewards.
Maximizing Yield Farming with $STAR and $PREON
Beyond its structured liquidation process, Preon offers high-yield farming opportunities for both $STAR and $PREON, allowing users to earn rewards while reinforcing protocol stability.
Ways to Earn Yield in Preon
✔️ Stability Pool Rewards → Deposit $STAR into the Stability Pool to earn discounted collateral from liquidations.
✔️ Liquidity Provision on Various DEXs → Deposit $USDC/$STAR and $PREON/$STAR in liquidity pools, earning fees and incentives.
✔️ Nebula Vault Strategies → Use borrowed $STAR to yield farm, compounding rewards without needing to sell assets.
By combining yield farming with Preon’s liquidation protections, users can maximize returns while reducing risk exposure.
A Safer Approach to DeFi Yield & Liquidations
Liquidations are a necessary part of CDP-based borrowing, but Preon’s structured liquidation model and Stability Pool create a smoother, more rewarding experience for borrowers and liquidity providers.
By leveraging interest-free borrowing, liquidation-resistant vaults, and yield-optimizing liquidity pools, Preon empowers users to earn more while keeping their funds secure.
🔗 Join the DeFi evolution with Preon Finance and start farming yield safely today!
