Collateralization ratio is the value of posted collateral divided by borrowed assets, as a percentage. Borrow $100 against $150 of collateral and the ratio is 150%. Lending protocols set minima, often 110-200% depending on how jumpy the collateral is, so they stay solvent when prices move. If the ratio falls below the liquidation threshold, the position can be liquidated.
Higher ratios are safer and less efficient. At 200% half the capital is a buffer, not working. Stablecoin collateral can run leaner than volatile tokens. Multi-asset positions mix different risk parameters. Protocols read oracle prices. Stale or manipulated oracles can liquidate wrongly or allow undercollateralized debt. Using DeFi lending without watching this ratio is how people get liquidated.
Set alerts and keep a buffer that matches the asset's volatility. Lending protocols require minimum ratios, typically 110-200% depending on collateral volatility, to maintain solvency during price swings. Higher ratios provide larger safety margins but reduce capital efficiency: 200% collateralization means half your capital sits as buffer rather than generating yield.
Collateralization ratio measures the value of deposited collateral relative to borrowed assets, expressed as a percentage that determines position safety in DeFi lending. Maker-style vaults need extra collateral above the debt. Drop under the ratio and the vault can be liquidated.
Collateralization Ratio Visualizer
Explore how collateral and borrowed asset values affect your DeFi lending position safety
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How It Works
The collateralization ratio = (Collateral Value ÷ Borrowed Amount) × 100. When your collateral loses value or your debt increases, the ratio drops. If it falls below the protocol's liquidation threshold, your position may be liquidated to protect lenders.