A liquidation gives no warning. The moment the price touches the threshold, a bot sells your collateral in that same block, takes a bonus for doing it, and leaves you with the debt cleared and considerably less collateral than you put up.
Working that price out before you open the position takes thirty seconds. This tool does it for the two common cases: an overcollateralised loan on a lending protocol, and a leveraged long on an exchange. Amounts are shown in dollars as illustrative figures, not conversions.
How an overcollateralised loan works
On a protocol like Aave you deposit one asset as security and borrow another. Since the protocol cannot assess your creditworthiness, it demands that the collateral be worth more than the debt from the first minute. Every asset carries two parameters:
- The maximum LTV (loan to value): how much you may borrow at the moment you open the position.
- The liquidation threshold: the ratio at which your position becomes liquidatable. It is always higher than the LTV, and the gap between the two is your cushion.
The health factor compresses the situation into a single number: collateral value × liquidation threshold ÷ debt. Above 1 you are safe; at exactly 1 you are liquidatable.
A worked example
You deposit 4 ETH with ether at $2,500: $10,000 of collateral. You borrow $4,000. The liquidation threshold for ETH is 80%.
Your maximum debt before liquidation is 10,000 × 0.80 = $8,000. Since you owe $4,000, your health factor is 8,000 ÷ 4,000 = 2.00.
The liquidation price falls out of rearranging that: you need 4 ETH × price × 0.80 = $4,000, which is a price of $1,250. Ether would have to fall 50% to liquidate you.
Now double the debt to $8,000. The health factor drops to 1.00 and the liquidation price rises to $2,500: you are liquidatable right now. Between those two situations there is no intermediate warning, only a number you chose yourself when you decided how much to borrow.
Liquidation carries an extra cost
When it fires, a liquidator repays part of your debt in exchange for taking your collateral at a discount. That bonus — typically between 5% and 10% depending on the asset and the protocol — comes out of your pocket, and it is what makes watching your position worthwhile for the bots.
On $4,000 of liquidated debt with a 5% bonus, that is $200 you lose on top of the price move itself.
The oracle decides, not the market. The protocol does not look at the price on the exchange you trade on: it looks at the price its oracle hands it. If that oracle lags, is manipulated, or takes its price from a thin market, you can be liquidated by a move that never really happened anywhere else. This is a real and documented risk, and it is why the margin you leave should be wider than the arithmetic alone suggests.
Leverage: the arithmetic nobody looks at
At 10x, a 10% fall wipes out your capital. At 25x it takes 4%. At 100x, 1%: in crypto that happens several times a month.
And there is an asymmetry that rarely gets explained. Losing 50% then requires a 100% gain to get back to where you started. Losing 90% requires 900%. Liquidations do not average out: they compound against you.
| Leverage | Move that wipes out your capital |
|---|---|
| 2x | 50% |
| 5x | 20% |
| 10x | 10% |
| 25x | 4% |
| 50x | 2% |
| 100x | 1% |
On top of that come the opening fee, the closing fee and the funding rate, charged periodically while the position stays open and pulling the liquidation price closer as the hours pass. None of the three is included in the calculator.
The underlying concepts — market orders, spread, slippage, funding — are in the guide to crypto trading basics, and the mechanics of lending are in the DeFi guide.