Explain How 'Margin Calls' in Traditional Finance Are Similar to Liquidations in DeFi ⎊ Path

Explain How ‘Margin Calls’ in Traditional Finance Are Similar to Liquidations in DeFi.

Both are mechanisms to manage the risk of a borrower defaulting on a loan secured by collateral. A margin call in TradFi is a demand for the borrower to deposit more collateral to meet the minimum maintenance margin.

A DeFi liquidation is the automatic, smart contract-enforced sale of collateral when the loan-to-value ratio is breached. Both aim to protect the lender from loss, but DeFi liquidations are instant and non-negotiable.

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