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Liquidation Threshold

A liquidation threshold is the point at which a collateralized position becomes eligible for liquidation according to the rules of the loan or protocol. The threshold is usually linked to the relationship between the amount borrowed and the value of the collateral.

Why it matters to you

Knowing that a loan is collateralized is not enough. Investors and borrowers should understand how far the collateral value can fall before action is triggered and what happens once that threshold is reached.

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