What it means
A number that shows how safe a loan is: above 1 it's safe, at 1 or below it can be liquidated.
It rises when your collateral gains value or you repay, and falls when collateral drops or debt grows.
How it works
Borrowers keep it well above 1 to leave room for price moves.
Related terms
| Term | What it means |
|---|---|
| Liquidation | When a lending protocol sells a borrower's collateral because its value has fallen too close to the loan. |
| Collateral | What a borrower deposits to secure a loan, which the protocol can sell if the loan isn't safe any more. |
| Loan-to-value (LTV) | How much you can borrow against your collateral, as a share of its value. |
This glossary explains terms in general. It isn't investment, tax or legal advice.