The moment you deposit Bitcoin as collateral and borrow stablecoins, the most important thing to figure out is this: how far does Bitcoin need to fall before your position gets wiped out.
A leading global cryptocurrency platform,suitable for both beginners and experienced traders.
New user benefit: 20% off trading fees upon registration!！
Liquidation is the most brutal mechanism in crypto lending. It does not care about your entry price or how much you have already lost. The formula is simple, but many people never truly understand it.
The Liquidation Price Formula
Liquidation price = Loan amount ÷ (Collateral amount × Liquidation threshold)
It is that straightforward. For example:
You use 1 BTC as collateral, worth $100,000
You borrow $50,000 USDT
The platform sets the liquidation LTV at 80%
When your collateral value drops to $62,500, LTV = 50,000 ÷ 62,500 = 80%, and liquidation is triggered.
In other words, if Bitcoin falls from $100,000 to $62,500, a drop of 37.5%, your position is gone.
How Liquidation Thresholds Are Set — They Differ by Platform
Different platforms and different collateral assets can have very different liquidation thresholds:
Libre Protocol: Liquidation is triggered when LTV reaches 80%. There is a 72-hour grace period, but you need to bring LTV below 70% to be safe. Bringing it below 80% is not enough.
Zest Protocol: When the collateral ratio falls below the safety threshold, the system automatically starts the liquidation process.
BTCFi CDP: It uses a standard CDP liquidation mechanism. When the collateral ratio falls below the threshold, the Bitcoin collateral is liquidated.
Note: The liquidation threshold is not something you can choose. It is a fixed parameter set by the protocol. You must check it before borrowing.
Besides the Liquidation Price, Watch These Three Things
1. Oracle Price Feeds
DeFi protocols do not use real-time exchange prices. They use prices from oracles such as Chainlink. In extreme market conditions, oracles may lag, which means the price you see may differ from the actual liquidation trigger price. Even more dangerous: if the oracle malfunctions, liquidation may not happen in time, causing the protocol to accumulate bad debt.
2. Liquidation Penalty and Slippage
Liquidation does not close your position at market price. It sells your collateral at a discount. Liquidators have the right to buy your collateral at a discounted price, and the difference becomes their liquidation bonus. In extreme conditions, your collateral may be sold far below the market price, and your actual loss can be much larger than the liquidation price you calculated.
3. Liquidation Grace Period
Some protocols, such as Libre, give you a 72-hour grace period after liquidation is triggered so you can add collateral or repay the loan. Other protocols have no grace period at all and liquidate instantly once the threshold is reached. You must confirm this rule before borrowing.
Practical Steps: Calculate Your Real Liquidation Line
Check the maximum LTV and liquidation LTV on the borrowing page. Do not guess based on experience.
Use the formula above and calculate manually. Confirm the liquidation price for the amount you plan to borrow.
Set price alerts. Leave a safe distance above the liquidation price, for example at least $10,000 higher, so you can react in advance.
Keep room to add collateral. Do not lock up all your BTC.
High-risk warning: Liquidation leaves no room for negotiation. Once triggered, it executes. Appealing afterward is basically impossible. In the crypto market, a 37.5% pullback from $100,000 to $62,500 happens far more often than you might think.
A leading global cryptocurrency platform,suitable for both beginners and experienced traders.
New user benefit: 20% off trading fees upon registration!！
Next Step
Open the page of the platform where you plan to borrow and find the liquidation LTV parameter. Then take a piece of paper and use the formula above to calculate your liquidation price. If that price is less than 20% away from the current market price, either reduce the loan amount or do not borrow at all.
