By the end you will understand the machine that closes other people's loans, why strangers race all night to do it, and how one red hour feeds on itself.
You met a liquidation once already. In checkpoint 2, a CEX seized a levered trader at 3am, sold the position, and the price came back by morning. That was a venue's machine, behind closed doors.
Last checkpoint left a question open: the pawnshop lends against volatile collateral, and when that collateral thins, the pool's lenders are the ones exposed. Someone must close the failing loan, and nobody is on duty. A TradFi broker would phone you. This pawnshop has no phone.
Function first. Every loan on the books is a ratio: what the collateral is worth right now, against what the loan requires it to cover. While the ratio sits above one, the loan is nobody's business. The moment it slips below the line, the loan becomes seizable.
The name protocols give this ratio: the health factor. It is not a credit score, and no human reads it. It is recomputed every time the price moves, on every loan in the city, all night.
ETH slides and the card rewrites itself. The debt did not grow; the collateral thinned, so the health sank toward the line. Three things can move a health factor, and only two of them are yours.
Try each lever and watch the health respond.