GlossaryIntermediate
Collateralization Ratio
The current value of a position's collateral divided by the value of its debt, distinct from the protocol's minimum required ratio.
A collateralization ratio is the current value of a specific position's collateral divided by the value of its outstanding debt, expressed as a percentage — for example, $1,500 of collateral backing $1,000 of debt is a 150% collateralization ratio.
This is distinct from a protocol's collateral factor (see Kaavon's "Collateral Factor" glossary definition), which sets the minimum ratio a protocol requires — a position's actual collateralization ratio moves continuously as the collateral's price changes, and falling toward the protocol's minimum is generally what triggers a liquidation.
Examples
- A position's collateralization ratio falling toward a lending protocol's minimum required level is what puts it at risk of liquidation.
- A borrower can improve their collateralization ratio by adding more collateral or repaying part of the outstanding debt.