What Is a Liquidation Ratio in the Context of Over-Collateralized Stablecoins?

The liquidation ratio is the minimum required collateral-to-debt value that a user must maintain to keep their collateralized debt position (CDP) open. If the value of the collateral drops, causing the ratio to fall below this threshold, the smart contract automatically allows liquidators to seize and sell the collateral to repay the stablecoin debt, plus a penalty.

This mechanism protects the protocol's solvency.