Overview
The collateral ratio is the ratio of collateral value to debt, determining position health. A higher ratio means more safety buffer. Protocols set minimums to prevent losses.
How It Works
Position health is measured by the collateral-to-debt ratio. Falling below the minimum triggers liquidation. Users can add collateral or repay debt to maintain it.
Why It Matters
The collateral ratio balances capital efficiency and lender safety. It is central to lending and stablecoins. Monitoring it avoids liquidation.
Related Concepts
The collateral ratio relates to Collateral, Liquidation, and Loan-to-Value. It defines Position health.