In Options, How Does a Tokenized Asset’s Volatility Affect the Liquidation Threshold?

A tokenized asset's volatility significantly impacts the liquidation threshold for a loan or margin position. Higher volatility necessitates a lower liquidation threshold (meaning a higher required collateralization ratio) to provide a larger buffer against sudden, sharp price drops.

This is done to protect the protocol's solvency from a rapid, unrecoverable loss.