When you borrow crypto using your holdings as security, the collateral ratio, the percentage of your loan value backed by deposited assets determines if you stay safe—or get liquidated. It’s not just a number; it’s the line between keeping your assets and losing them. For example, if you deposit $1,000 worth of ETH to borrow $500 in USDC, your collateral ratio is 200%. That means you’ve put up twice as much as you borrowed. Most DeFi platforms require at least 150% to 200% to protect lenders if prices drop.
The loan-to-value (LTV), the inverse of collateral ratio, showing how much you can borrow relative to your deposit is what lenders use to set limits. If a platform caps LTV at 50%, you can only borrow half of what you deposit. This directly ties to the collateral ratio, the safety buffer that keeps your position from being wiped out during market dips. A sudden 30% drop in ETH could turn a 200% ratio into 140%, triggering automatic liquidation. That’s why smart users keep extra collateral—sometimes double the minimum—to avoid surprise sell-offs.
Platforms like Aave, Compound, and MakerDAO all use this system, but their rules vary. Some let you borrow stablecoins against volatile tokens, others only allow similar assets. Your collateral ratio, the core metric that guards your position in decentralized finance isn’t static—it moves with the market. If Bitcoin crashes, your ratio drops fast. If you’re using ETH as collateral for a loan on a new DeFi protocol, you’re betting that its price won’t fall below the liquidation threshold. That’s why users track ratios in real time, set price alerts, or add more assets before a big market move.
What you’ll find in the posts below are real-world examples of how this works—whether it’s a user losing ETH due to a 170% ratio dropping to 120%, or someone using a 300% ratio to safely earn yield while borrowing. You’ll see how airdrops, token listings, and exchange reviews all tie back to one thing: managing risk through collateral. No fluff. Just clear patterns from platforms you’re already using, so you know when to act—and when to wait.
Learn how liquidation works in collateralized loans on blockchain, why it's faster and riskier than traditional lending, and how to avoid losing your crypto to automated liquidations.