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.
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