Formula & Calculator
Liquidation Threshold Price (DeFi Lending)
Calculates the collateral price at which a DeFi lending position becomes eligible for liquidation.
Interpretation
Liq. Price = (Debt Value × Liquidation Threshold) / Collateral Amount. The price at which a loan position becomes liquidatable.
Variables
| Symbol | Quantity | Unit |
|---|---|---|
| Liq. Price | Liquidation price | currency |
| Debt Value | Value of debt owed | currency |
| Liquidation Threshold | Protocol's liquidation LTV threshold | |
| Collateral Amount | Amount of collateral asset held | coins |
What it means
In DeFi lending, the liquidation price is the value of collateral at which the loan will be liquidated. It is calculated from the debt, liquidation threshold (e.g., 80%), and collateral amount. This is used to monitor positions and to manage risk. Understanding this helps borrowers avoid liquidation by maintaining adequate collateral.
Worked example
Liquidation Threshold Price – Two Detailed Examples
Real‑World| Parameter | Value |
|---|---|
| Debt Value | $10,000 |
| Liquidation Threshold | 0.80 |
| Collateral Amount | 0.2 BTC |
| Parameter | Value |
|---|---|
| Debt | $5,000 |
| Threshold | 0.75 |
| Collateral | 2 ETH |
Common mistakes
- Liquidation price: The price at which the collateral is worth less than the loan.
- Debt value: The total debt (including interest).
- Liquidation threshold: The maximum LTV allowed (e.g., 80%).
- Collateral amount: The quantity of collateral tokens.
- Result: The price per unit of collateral at liquidation.
Applications
Liquidation threshold price (DeFi lending) calculates the price at which a loan position becomes eligible for liquidation, based on the debt and collateral amount. Borrowers use this to set stop‑loss levels and to manage risk. By knowing the liquidation price, they can take corrective action before being liquidated. This is a critical metric for safe borrowing.
- Setting stop‑loss and risk management levels for loans
- Monitoring the health of a borrowing position
- Deciding when to add collateral or repay debt
- Understanding the risk of liquidation
- Educational understanding of DeFi liquidation mechanics
Frequently Asked Questions
Liq. Price = (Debt Value × Liquidation Threshold) / Collateral Amount. For example, if you owe $10,000 with a 0.80 threshold and have 0.2 BTC as collateral, the liquidation price is (10000 × 0.80) / 0.2 = $40,000. Below this, your position will be liquidated.
The liquidation threshold is the maximum LTV allowed before liquidation triggers. It is set by the protocol for each asset type, e.g., 0.8 for ETH, 0.85 for stablecoins. It accounts for price volatility.
Yes, by adding more collateral or repaying some debt. This increases the collateralization ratio and moves the liquidation price further away, giving you more protection.
No, it depends on your specific debt and collateral amounts. Each position has its own liquidation price based on its unique parameters.
The protocol will automatically liquidate a portion of your collateral to repay the debt. You will incur a liquidation penalty (typically 5-10%) on the liquidated amount.
Most DeFi dashboards and wallet apps show your liquidation price. You can also set alerts to notify you when the price approaches your liquidation level.
It is based on the total debt including accrued interest. As interest accumulates, the liquidation price moves closer, so you should account for that.
Liquidation price is enforced by the protocol; you have no control once it is hit. Stop-loss is a manual order you can place to close your position before liquidation, giving you more control.