Overview
The liquidation price is the asset price at which a borrowing position becomes eligible for liquidation. It is derived from the loan amount and collateralization threshold. Understanding it helps borrowers manage risk.
How It Works
As collateral price falls or the loan grows, the ratio approaches the liquidation threshold. At that price, liquidators can repay the loan and take the collateral. Borrowers can monitor it to avoid liquidation.
Why It Matters
The liquidation price determines the boundary of loan safety. Missing it results in losing collateral at a discount. It is a key metric for any leveraged position.
Related Concepts
The liquidation price is central to Lending and Liquidation. It depends on Collateral value and Loan-to-Value.