Your liquidation threshold is the collateral value a lender actually counts when judging whether your loan is failing. On CollateralLoop Lending, if that weighted value drops below your borrowed amount, any liquidator can repay part of your debt and seize collateral at a discount. The arithmetic takes thirty seconds. The mistakes happen weeks earlier.
The two risk settings on every asset
Each asset you deposit carries a loan-to-value ratio and a liquidation threshold. The LTV caps how much you can borrow when you open the position. The liquidation threshold is a higher number that only matters once the position starts to fail. That gap is deliberate: it creates a buffer zone where your health factor slips below the LTV line but you are not yet liquidatable.
Deposit an asset with a 75% LTV and an 80% liquidation threshold, and you can borrow up to 75% of its value. Between 75% and 80%, nothing happens except your health factor sliding toward 1.0. Cross 80% and the position is fair game.
Why the two numbers differ
The buffer absorbs ordinary price swings without forcing instant liquidation, and it protects the protocol from bad debt if a liquidator cannot close the position fast enough. Volatile assets sit at lower thresholds; stablecoins sit much higher.
A worked liquidation threshold calculation example
Here is the arithmetic with round numbers, so you can follow each step.
You deposit $20,000 of an asset with an 80% liquidation threshold and borrow $12,000 of a stablecoin. Your health factor is weighted collateral divided by total debt:
- Weighted collateral: $20,000 × 0.80 = $16,000
- Total debt: $12,000
- Health factor: $16,000 ÷ $12,000 = 1.33
Above 1.0, you are safe. Below 1.0, liquidation becomes possible. To find the exact collateral price where you get liquidated, divide your debt by the threshold: $12,000 ÷ 0.80 = $15,000. A fall from $20,000 to $15,000 — 25% — puts your health factor at 1.0.
The scenario that catches people out
Same position: $20,000 deposited, $12,000 borrowed. The collateral falls to $15,500. Health factor: ($15,500 × 0.80) ÷ $12,000 = 1.03. Safe, but barely. Then you borrow another $1,000. New debt is $13,000, and the health factor becomes $12,400 ÷ $13,000 = 0.95. You are liquidatable the moment that transaction confirms. The price never moved — your own borrowing did it.
Reconstructing the number on a live position
The dashboard shows your health factor but not the threshold math behind it. You rebuild it yourself. Each supplied asset is listed with its liquidation threshold; each borrowed asset is listed with its balance. Multiply, sum, divide.
Multiple collateral assets
With two deposits, weight each one separately. Deposit $10,000 of asset A at 80% and $10,000 of asset B at 70%, and weighted collateral is $8,000 + $7,000 = $15,000. Borrow $10,000 and your health factor is 1.50. The lower-threshold asset drags your safety down more than its dollar value suggests.
Multiple debt assets
Debt is never weighted. Every borrowed dollar counts at face value, plus accrued interest. Interest is the quiet killer: it raises your debt while your collateral sits still.
| Scenario | Weighted collateral | Debt | Health factor |
|---|---|---|---|
| Single asset, 80% threshold | $16,000 | $12,000 | 1.33 |
| After borrowing $1,000 more | $12,400 | $13,000 | 0.95 |
| Two assets (80% + 70%) | $15,000 | $10,000 | 1.50 |
Where the calculation goes wrong
Most liquidation stories are not flash crashes. They are small moves stacking up: you borrow a bit more, interest accrues for three weeks, the collateral drifts down 4%. None of those feels dangerous alone. Together they push a 1.33 health factor under 1.0.
Treating the threshold as fixed
Thresholds are not permanent. Governance can adjust risk parameters for an asset, and the change applies to your existing position. You are not grandfathered in. If a threshold drops from 80% to 75%, your weighted collateral falls immediately, with prices flat.
Assuming liquidation is all-or-nothing
A liquidator typically repays part of your debt and takes collateral plus a penalty. You keep the rest of the position, now smaller and closer to the edge. One liquidation often leads to another if you do not act.
Frequently asked questions
Is the liquidation threshold the same as the LTV ratio?
No, and mixing them up is one of the most common errors. The LTV caps your maximum borrow when you open the position. The liquidation threshold is the higher figure used to judge whether the position is failing. On CollateralLoop Lending, the threshold is always at or above the LTV for a given asset, which creates the buffer between "maxed out" and "liquidatable."
What health factor should I aim for?
There is no universal answer, and anyone quoting a fixed number is oversimplifying. A position backed by stablecoin pairs behaves very differently from one backed by a volatile token. What matters is how far your collateral can fall before the health factor reaches 1.0. Work out that price, then ask whether a move of that size is plausible in the time you plan to hold.
Does repaying debt always raise my health factor?
It raises it, because you are shrinking the denominator. But the effect depends on how much you repay relative to the total. Clearing a small debt asset while a large one remains barely moves the number. If you are close to the line, repay the largest debt first, or add collateral instead — adding collateral lifts the numerator and usually helps more per dollar.
Tonight, take your current collateral, multiply by the threshold, divide by your debt, and write down the collateral price where that result hits 1.0. That single figure is the number worth watching.