Liquidation is the #1 way DeFi borrowers lose money — your collateral gets auto-sold at the worst moment, plus a 5–15% penalty. Here are 4 rules to never let it happen to you.
When you borrow against crypto, if your collateral drops too close to your loan amount, the protocol AUTOMATICALLY sells your collateral to repay the loan — and charges a penalty. A 35% crypto drop can wipe a leveraged position entirely.
Rule 1: Keep LTV low. Borrow only 30–40% of your collateral value — never the maximum. Rule 2: Use stablecoins as collateral when possible. If you deposit USDC and borrow USDC, there's zero liquidation risk from price moves.
Rule 3: Monitor your health factor — keep it above 1.5, well clear of 1.0. Set price alerts on your collateral. Rule 4: Have a defense plan. If price drops, add more collateral OR repay part of the loan to restore your buffer before liquidation hits.
NEVER borrow the maximum. Crypto can drop 30% in a day. A position liquidated in a flash crash is one of the most painful losses in crypto. Conservative 30% LTV gives you room to survive volatility. Respect liquidation, always.
Read More →