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What Is the Risk of “Liquidation” When Using an NFT as Collateral?

If the NFT's market value drops below the threshold, the illiquid asset is automatically sold to cover the loan, causing the borrower to lose it.
Greeks.Live16.11.25

What Is the Risk of “Liquidation” When Using an NFT as Collateral?

Liquidation risk occurs when the value of the NFT collateral falls below the protocol's maintenance threshold, often due to a drop in its market price. Since NFTs are illiquid, the liquidation process is challenging.

The protocol may automatically sell the NFT to the highest bidder to cover the outstanding loan, resulting in the borrower losing their unique asset.

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