# What Happens If the Collateralization Ratio Falls below a Minimum Threshold? ⎊ Path

**Published:** 2025-12-04
**Author:** Greeks.live
**Categories:** Path

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## What Happens If the Collateralization Ratio Falls below a Minimum Threshold?

If the ratio drops below the minimum threshold (e.g. 150% to 149%), the position becomes vulnerable to liquidation.

The smart contract marks the position for liquidation, allowing anyone to purchase the collateral at a discount to repay the outstanding stablecoin debt. This action closes the under-collateralized position, ensuring the stablecoin remains fully backed.

- [How Does a Smart Contract Handle the Conversion of Collateral to Stablecoins upon Liquidation?](https://learn.greeks.live/path/how-does-a-smart-contract-handle-the-conversion-of-collateral-to-stablecoins-upon-liquidation/)

- [How Does a Collateralized Debt Position (CDP) Mechanism Secure a Stablecoin’s Peg?](https://learn.greeks.live/path/how-does-a-collateralized-debt-position-cdp-mechanism-secure-a-stablecoins-peg/)

- [How Does a Smart Contract Perform a Margin Call and Liquidation?](https://learn.greeks.live/path/how-does-a-smart-contract-perform-a-margin-call-and-liquidation/)

- [Explain the Role of Liquidation in Maintaining a Stablecoin’s Peg](https://learn.greeks.live/path/explain-the-role-of-liquidation-in-maintaining-a-stablecoins-peg/)

- [How Does Liquidation Impact the Borrower’s Position?](https://learn.greeks.live/path/how-does-liquidation-impact-the-borrowers-position/)

- [How Does a Smart Contract Enforce the Margin Call Process for a Perpetual Futures Contract?](https://learn.greeks.live/path/how-does-a-smart-contract-enforce-the-margin-call-process-for-a-perpetual-futures-contract/)

- [How Is Collateral Managed and Liquidated in a DeFi Smart Lending Contract?](https://learn.greeks.live/path/how-is-collateral-managed-and-liquidated-in-a-defi-smart-lending-contract/)

- [What Role Does the Liquidation Ratio Play in CDP-based Stablecoins?](https://learn.greeks.live/path/what-role-does-the-liquidation-ratio-play-in-cdp-based-stablecoins/)

## Glossar

### [Minimum Threshold](https://learn.greeks.live/area/minimum-threshold/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)

Threshold ⎊ The minimum threshold, across cryptocurrency derivatives, options trading, and broader financial derivatives, represents a pre-defined level that must be breached for a specific action or condition to be triggered.

### [Collateralization Ratio](https://learn.greeks.live/area/collateralization-ratio/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)

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.

## Discover More

### [How Does Collateralization (Margin) Work to Mitigate Counterparty Risk within a CCP Framework?](https://learn.greeks.live/path/how-does-collateralization-margin-work-to-mitigate-counterparty-risk-within-a-ccp-framework/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Does Collateralization (Margin) Work to Mitigate Counterparty Risk within a CCP Framework?](https://learn.greeks.live/wp-content/uploads/2025/10/Exotic-Derivatives-Hedging-Utilizing-A-Smooth-Ivory-Sphere-Against-Teal-And-Indigo-Substrates.webp)

Margin is collateral posted by members (initial and variation) to cover potential losses from default, financially protecting the CCP and market.

### [What Economic Factors Might Prevent a Selfish Miner from Reaching the 51% Threshold?](https://learn.greeks.live/path/what-economic-factors-might-prevent-a-selfish-miner-from-reaching-the-51-threshold/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![What Economic Factors Might Prevent a Selfish Miner from Reaching the 51% Threshold?](https://learn.greeks.live/wp-content/uploads/2025/10/Hinge-Mechanism-Abstraction-on-Integrated-Circuit-Substrate-Digital-Asset-Tokenization-Infrastructure.webp)

Escalating hardware and electricity costs, coupled with the risk of a community-led defensive hard fork, deter reaching 51%.

### [In a Commit-Reveal System, What Is the Minimum Time Delay between the Commit and the Reveal?](https://learn.greeks.live/path/in-a-commit-reveal-system-what-is-the-minimum-time-delay-between-the-commit-and-the-reveal/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![In a Commit-Reveal System, What Is the Minimum Time Delay between the Commit and the Reveal?](https://learn.greeks.live/wp-content/uploads/2025/10/Bespoke-Algorithmic-Trading-Mechanism-Revealing-Internal-Actuator-Dynamics-For-Decentralized-Finance-Primitives.webp)

The minimum delay is one block time, as the commitment transaction must be confirmed before the reveal can be submitted.

### [How Do Regulatory Bodies Influence Minimum Margin Levels?](https://learn.greeks.live/path/how-do-regulatory-bodies-influence-minimum-margin-levels/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Do Regulatory Bodies Influence Minimum Margin Levels?](https://learn.greeks.live/wp-content/uploads/2025/10/Precision-Blade-Intersecting-Digital-Collateralized-Asset-Module-Abstract-Representation.webp)

Regulators approve and review CCP margin methodologies, mandating minimum standards and coverage levels to ensure systemic risk prevention.

### [How Does the Threshold Setting (E.g. 2-of-3) Impact the Security and Usability Trade-Off?](https://learn.greeks.live/path/how-does-the-threshold-setting-e-g-2-of-3-impact-the-security-and-usability-trade-off/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Does the Threshold Setting (E.g. 2-of-3) Impact the Security and Usability Trade-Off?](https://learn.greeks.live/wp-content/uploads/2025/10/Geometric-Cryptographic-Shard-Encapsulating-Decentralized-Finance-Volatility-Matrix-Optics.webp)

Higher threshold increases security but decreases usability and increases risk of permanent fund lock due to key loss.

### [How Does the 'Cost of Production' Relate to the Minimum Sustainable Price for a Miner?](https://learn.greeks.live/path/how-does-the-cost-of-production-relate-to-the-minimum-sustainable-price-for-a-miner/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Does the 'Cost of Production' Relate to the Minimum Sustainable Price for a Miner?](https://learn.greeks.live/wp-content/uploads/2025/10/Decentralized-Finance-Star-Formation-Analyzing-High-Frequency-Algorithmic-Option-Strike-Structures.webp)

Cost of production defines the break-even price per coin; if the market price falls below this, the operation becomes financially unsustainable.

### [How Does a Volatile Asset Affect the Required Collateralization Ratio?](https://learn.greeks.live/path/how-does-a-volatile-asset-affect-the-required-collateralization-ratio/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Does a Volatile Asset Affect the Required Collateralization Ratio?](https://learn.greeks.live/wp-content/uploads/2025/10/Crystalline-Bifurcation-Balancing-Volatile-Digital-Asset-Swaption-Payoffs-Across-Impermanent-Loss-Vectors.webp)

Volatile assets require a much higher minimum collateralization ratio to account for the risk of sudden, severe price drops that could trigger rapid liquidation.

### [How Does Implied Volatility (IV) Relate to the Minimum RFQ Size Requirement?](https://learn.greeks.live/path/how-does-implied-volatility-iv-relate-to-the-minimum-rfq-size-requirement/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Does Implied Volatility (IV) Relate to the Minimum RFQ Size Requirement?](https://learn.greeks.live/wp-content/uploads/2025/10/Abstract-Depiction-of-Implied-Volatility-Measurement-Through-Financial-Derivative-Clock-Mechanisms.webp)

High IV increases market maker risk, often leading to a larger minimum RFQ size to justify the increased exposure.

### [What Are the Minimum Trade Sizes Typically Required for a Crypto RFQ?](https://learn.greeks.live/path/what-are-the-minimum-trade-sizes-typically-required-for-a-crypto-rfq/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![What Are the Minimum Trade Sizes Typically Required for a Crypto RFQ?](https://learn.greeks.live/wp-content/uploads/2025/10/Advanced-Volatility-Surface-Calibration-Mechanism-Involving-Bifurcating-Asymmetric-Hedging-Instruments.webp)

Typically over $100k for institutional OTC desks, but can be much lower on certain DeFi platforms.

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**Original URL:** https://learn.greeks.live/learn/what-happens-if-the-collateralization-ratio-falls-below-a-minimum-threshold/
