When you borrow crypto in DeFi, you’re not dealing with a bank—you’re dealing with DeFi liquidation, the automated process that sells your collateral if your loan becomes undercollateralized. It’s not a penalty, not a mistake—it’s code enforcing rules you agreed to. This isn’t like a mortgage where you get a grace period. In DeFi, if your collateral drops below the required level, your position gets wiped out—fast. No warning. No call. Just a smart contract executing a sale.
Most people think liquidation only happens during a market crash. But it can happen in a 5% dip if you’re over-leveraged. Collateral, the crypto you lock up to secure your loan is usually something like ETH or BTC. The liquidation threshold, the price point at which your loan becomes unsafe is set by the protocol—often between 80% and 90% of your collateral’s value. If you borrow $1,000 worth of USDC using $1,200 of ETH, your liquidation threshold might be at $1,080. If ETH drops just $120, you’re in danger.
Why do people keep getting liquidated? Because they treat DeFi like a casino. They borrow more than they can afford, chase yield, and ignore the math. You don’t need to predict the market. You just need to know your exposure. Margin trading, the practice of borrowing to amplify positions is risky by design. Platforms like Aave, Compound, and dYdX let you borrow up to 75% or 80% of your collateral’s value—but that’s not a green light. It’s a red flag waiting to be triggered.
Most DeFi users don’t set up alerts. They don’t monitor their health factor. They assume their position is safe because it was fine yesterday. But markets don’t wait. A single tweet, a regulatory rumor, or a whale dump can send prices tumbling in minutes. And when that happens, liquidators—automated bots—move in. They buy your collateral at a discount, pocket the profit, and your position vanishes.
You can avoid this. Keep your loan-to-value ratio low. Don’t max out your borrow limit. Use stablecoins as collateral when possible—they’re less volatile. Set price alerts. Watch your health factor daily. And never, ever use borrowed funds to buy more risky assets. That’s how you turn a small loss into a total wipeout.
The posts below show real cases: how people lost everything on platforms like Bamboo Relay, how trading pairs and arbitrage strategies can accidentally trigger liquidations, and why meme coins like DOGE2.0 or BTTY make terrible collateral. You’ll also find guides on how to pick safer DeFi protocols, how to use tools to monitor your exposure, and what to do if you’re already in danger. This isn’t theory. It’s survival.
Liquidation engines automatically close leveraged crypto positions when collateral drops too low. Learn how they work on centralized exchanges vs. DeFi, why ADL happens, and how to avoid getting wiped out.
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