Calculate liquidation price and safety margin for crypto-backed loans across different protocols. Understand your liquidation risk and optimize your loan positions.
Amount of crypto you're using as collateral
Current price per unit of collateral
Amount you've borrowed in USD
LTV percentage at which liquidation occurs
Penalty fee charged during liquidation
Liquidation occurs when your collateral value drops below the required threshold to support your loan. The protocol automatically sells your collateral to repay the debt, charging a penalty fee. This protects lenders but can result in significant losses for borrowers.
LTV measures how much you've borrowed relative to your collateral value. Formula: (Loan Amount / Collateral Value) × 100. A 50% LTV means you've borrowed $5,000 against $10,000 collateral. Higher LTV = higher liquidation risk.
The maximum LTV before liquidation triggers. If threshold is 75%, your loan is liquidated when LTV hits 75%. Different assets have different thresholds based on volatility - stablecoins (85-90%), ETH (80-85%), altcoins (50-75%).
The buffer between your current LTV and liquidation threshold. Formula: Liquidation Threshold - Current LTV. A 20% safety margin means your LTV is 55% with a 75% threshold. Aim for 25-30% minimum safety margin.
The collateral price that triggers liquidation. If ETH is $2,000 and liquidation price is $1,500, a 25% drop liquidates you. Formula: Collateral Price × (Loan / Collateral Amount) / (Threshold / 100). Always know this number!
Fee charged during liquidation (5-15% of collateral value). Aave charges 5%, Compound 8%, MakerDAO 13%. On $10,000 collateral with 10% penalty, you lose $1,000 plus liquidation losses. Avoid liquidation at all costs!
Enter how many units of crypto you've deposited as collateral. Example: 10 ETH, 0.5 BTC, or 100 SOL. This is the quantity, not the dollar value.
Current market price per unit of your collateral in USD. If ETH is $2,000, enter 2000. Use current market prices from CoinMarketCap or your exchange. Update regularly!
Total amount you've borrowed in USD (or stablecoin equivalent). If you borrowed 10,000 USDC or DAI, enter 10000. Include all accumulated interest if not paid separately.
Find this in your protocol's documentation. Aave ETH: 82.5%, Compound ETH: 75%, MakerDAO: 65% (varies by vault). This is the LTV percentage that triggers liquidation.
Protocol-specific penalty fee. Aave: 5%, Compound: 8%, MakerDAO: 13%, Venus: 10%. Check your protocol's docs under "Liquidation Incentive" or "Liquidation Penalty".
You'll see: Liquidation Price (critical!), Current LTV (your risk level), Safety Margin (your buffer), and Max Safe Borrow (conservative limit). Red = danger, orange = caution, green = safe.
Collateral: 10 ETH at $2,000/ETH ($20,000 value). Loan: $10,000 USDC. Threshold: 75%. Penalty: 10%
Collateral Value = Amount × Price
Example: 10 ETH × $2,000 = $20,000
LTV = (Loan Amount / Collateral Value) × 100
Example: ($10,000 / $20,000) × 100 = 50%
Liq Price = Price × (Loan / Amount) / (Threshold / 100)
Example: $2,000 × ($10,000 / 10) / 0.75 = $1,333
Safety = Threshold - Current LTV
Example: 75% - 50% = 25% buffer
Drop % = ((Price - Liq Price) / Price) × 100
Example: (($2,000 - $1,333) / $2,000) × 100 = 33.3%
Max Safe = Collateral × (Threshold / 100) × 0.8
Example: $20,000 × 0.75 × 0.8 = $12,000 (80% buffer)
Penalty Amount = Collateral Value × (Penalty % / 100)
This is what you lose if liquidated, on top of your collateral being sold. For $20,000 collateral with 10% penalty: $20,000 × 0.10 = $2,000 penalty. Plus you lose collateral sold to cover debt. Always avoid liquidation!
Target 25-35% safety margin minimum. If liquidation threshold is 75%, keep LTV at 40-50%. This provides a substantial buffer for market volatility. Crypto can drop 30-50% in days!
Don't wait for emergencies. When safety margin drops below 20%, add more collateral immediately. Keep 10-20% extra collateral ready to deploy. Better to act early than scramble during a crash.
Reduce loan amount to lower LTV. Repaying 20-30% of debt significantly improves safety. Consider partial repayments during market dips to increase your buffer before further drops.
Use DeFi Saver, Instadapp, or B.Protocol for automated position management. These tools can automatically add collateral or repay debt when thresholds are breached, even while you sleep.
Set price alerts at your liquidation price + 15-20% buffer. Use CoinGecko, TradingView, or protocol dashboards. Check your position daily during volatile markets, weekly during stable periods.
ETH and BTC are less volatile than altcoins. Stablecoins (with 85-90% thresholds) offer max safety but lower capital efficiency. Balance risk vs reward based on your risk tolerance.
Different protocols have different liquidation mechanisms. Aave liquidates 50% of debt, Compound liquidates up to 50%, MakerDAO can liquidate everything. Know your protocol's specific liquidation process.
Maintain 10-20% of your collateral value in liquid assets (stablecoins, fiat) to quickly add collateral or repay debt during crashes. Can't help if funds are locked elsewhere!
Never borrow more than 50-60% of the liquidation threshold. If threshold is 75%, keep LTV at 40-45% max. This 30-35% safety buffer can absorb a 40-50% price crash without liquidation. The extra borrowing capacity isn't worth losing your collateral and paying 5-15% penalties!
ETH Threshold: 82.5% | Penalty: 5% | Partial Liquidation: Yes (50%) |Features: Flash loans, stable/variable rates, isolation mode. User-friendly with good safety margins.
ETH Collateral Factor: 75% | Incentive: 8% | Partial Liquidation: Up to 50% |Features: Simple interface, algorithmic rates, governance token rewards.
ETH Liquidation Ratio: 145% (65% LTV) | Penalty: 13% | Liquidation: Full or partial |Features: Generate DAI, stability fee, multiple vault types (ETH-A, ETH-B, ETH-C).
Soft Liquidation: Gradual conversion | crvUSD: Innovative liquidation mechanism |Risk: Lower liquidation impact but complex mechanics.
Thresholds: Vary by asset (50-80%) | Incentive: 10% |Chain: BNB Smart Chain. Similar to Compound, lower fees.
Liquidation Fee: 12.5% | Uses: Interest-bearing collateral (yvUSDT, etc.) |Risk: Higher but uses yield-generating assets.
Crypto can drop 30-50% in hours during crashes (May 2021, Nov 2022). Your 25% safety margin can evaporate instantly. Always maintain buffers that can survive extreme volatility.
Protocols use price oracles (Chainlink, etc.) which can lag or be manipulated during extreme volatility. Your position might get liquidated even if you think you're safe based on exchange prices.
During crashes, Ethereum gas fees can hit 1000+ gwei. Adding collateral might cost $200-500+ in gas, making small position adjustments uneconomical. Plan for high gas costs.
Multiple loans across protocols create complex liquidation scenarios. If one position gets liquidated, the cascading effects could impact your other positions. Track total exposure.
If you borrowed stablecoins and they depeg upward (USDC to $1.10), your debt increases in real terms. Conversely, collateral stablecoin depegs (DAI to $0.90) reduce collateral value. Monitor peg stability.
Protocol bugs or exploits can trigger emergency shutdowns or unexpected liquidations. Use audited protocols (Aave, Compound) and never put more at risk than you can afford to lose.
Variable interest rates can spike during high utilization, increasing your debt faster than expected. Your LTV creeps up over time. Monitor accruing interest and consider stable rate options.
Some protocols liquidate 50% of your position, but if price keeps falling, the remaining 50% gets liquidated again. You pay multiple penalty fees. One crash can mean several liquidations.
Liquidation is a taxable event in most jurisdictions. When your collateral is sold during liquidation, it's treated as a disposal triggering capital gains or losses. Additionally, liquidation penalties are typically not tax-deductible, making liquidation doubly expensive.
DeFi taxation is complex and evolving. The IRS and international tax authorities are actively developing guidance. Liquidation tax treatment varies by country (US vs EU vs Asia), entity type (individual vs business), and specific circumstances. Consult with a crypto-specialized tax professional to ensure compliance, optimize your strategy, and avoid penalties. The cost of professional advice is far less than potential tax liabilities or audit penalties.