DeFi lending commonly requires collateral worth more than the borrowed assets. A health factor or similar metric compares the position with the protocol’s liquidation threshold.
Prices and interest can move a position
A fall in collateral value, a rise in debt value, or accumulating interest can weaken the position. Once the protocol threshold is crossed, liquidators may repay debt and receive collateral.
The protocol acts on its configured price data
Liquidation logic uses oracle values and risk parameters rather than a user’s purchase price or an exchange quote they happen to be watching.
Liquidation can happen without notice
Smart contracts execute according to their current data and rules. Borrowers should understand oracle dependency, network fees, available liquidity, and the buffer between their position and the threshold.
A wider collateral buffer reduces immediate sensitivity
Borrowing to the maximum leaves little room for price movement or interest accrual. A buffer can reduce risk but cannot remove liquidation or oracle risk.
Sources
Educational information, not investment advice.