How Can a Borrower “Top Up” Collateral to Avoid Liquidation?
A borrower can avoid liquidation by depositing additional collateral into the smart contract, a process known as "topping up." This increases the total collateral value, raising the collateralization ratio above the maintenance threshold. The smart contract automatically recognizes the deposit and updates the ratio, instantly removing the position from the liquidation queue.
Glossar
Borrower
Obligation ⎊ A borrower, within cryptocurrency, options, and derivatives markets, assumes a contractual obligation to return borrowed assets, typically with predetermined interest or fees, functioning as a core component of leveraged trading strategies and market making activities.
Avoid Liquidation
Strategy ⎊ Avoiding liquidation requires proactive risk management strategies focused on maintaining a healthy margin ratio.
Capital Efficiency
Leverage ⎊ Capital efficiency, within cryptocurrency and derivatives, fundamentally represents the maximization of risk-adjusted returns relative to capital at risk, a metric increasingly vital given regulatory constraints and market volatility.
Collateralization Ratio
MarginRequirement ⎊ The Collateralization Ratio quantifies the amount of posted margin relative to the notional value or exposure of a leveraged position, serving as the primary metric for assessing margin adequacy.