Margin Calls and Liquidation: What Every Borrower Should Know

Loan Health in Plain Terms

Every crypto-backed loan is monitored against a set of LTV thresholds. Below the first threshold the loan is healthy. Cross it, and you receive a warning. Cross the next, and you are asked to act. Cross the final one, and the lender may sell collateral to bring the position back into line.

The purpose of these thresholds is to protect both parties. They give you time to respond before the position becomes critical, and they protect the lender from a loan that is no longer adequately secured.

What a Margin Call Actually Asks of You

A margin call is a request to restore your LTV to a safer level within a defined window. You can do this by depositing additional collateral, repaying part of the balance, or a combination of both. The notice will state the amount required and the deadline; the earlier you respond, the more options you have.

• Warning: LTV has risen above the first threshold. No action is required, but you should review your position.
• Margin call: LTV has reached the second threshold. Add collateral or repay within the stated window.
• Liquidation: LTV has reached the final threshold, or the margin call window has passed without a cure.

How Liquidation Works

If liquidation is triggered, only as much collateral as is necessary to restore the target LTV is sold, and the proceeds are applied to the loan balance. Any remaining collateral stays in place. Liquidation is a last resort, not a first response, and it is designed to be proportionate.

Reducing the Chance of Ever Getting There

Start at a conservative LTV, keep some liquidity or additional collateral in reserve, and set your own alerts below the lender’s thresholds. Know in advance which asset you would add and how long it takes to move. Borrowers who plan for a downturn rarely have to make decisions during one.

This article is for general informational purposes only and does not constitute financial, investment, legal, or tax advice. Digital assets are volatile, and borrowing against them involves risk. Loan availability and final terms are subject to eligibility, underwriting, and market conditions.