What Role Does the Liquidation Ratio Play in CDP-based Stablecoins?

The liquidation ratio is the minimum required ratio of collateral value to debt value. It dictates the point at which a user's collateral will be automatically sold to cover their stablecoin debt.

Setting a higher ratio provides a larger safety buffer for the protocol against rapid price drops. It is a critical risk management parameter, ensuring the protocol remains solvent and the stablecoin's peg is protected.