What is understanding liquidation risks in crypto lending?

Liquidation risks crypto occur when the value of your BTC collateral falls relative to your loan and crosses a lender's liquidation threshold. On Borrow by Sats Terminal, you can see each lender's current LTV, liquidation price, and terms before you borrow, and you control every action—nothing moves without your explicit approval.

How liquidation works on Borrow

What triggers liquidation

• Each lender sets its own maximum LTV and liquidation threshold. If BTC value drops or loan balance grows, the loan’s LTV rises. When the threshold is crossed, the lender may liquidate collateral to repay the loan.
• You are responsible for monitoring risk. Borrow does not automatically liquidate or modify terms on your behalf.

What Borrow shows you

• Current LTV and collateral value
• Outstanding loan balance and accrued interest
• Estimated liquidation price per lender
• The lender type (non-custodial vs custodial) and the required collateral level
• The steps in progress and what permissions are needed from you

Reducing risk with Sats Terminal Borrow

• Lower LTV by adding BTC collateral: more collateral reduces the risk of breaching a lender's threshold.
• Repay part or all of the loan: reduces outstanding principal and LTV.
• Choose lenders with favorable terms: some non-custodial protocols may offer clearer on-chain enforcement and transparent thresholds.
• Diversify across lenders when possible: the multi-lender approach gives you options if one set of terms tightens.
• Monitor the dashboard regularly: observe real-time LTV, collateral value, and liquidation thresholds to time actions before risk rises.
• Be mindful of cross-chain mechanics: when bridging is needed, understand how bridging risk can affect timing and liquidity.

Practical strategies for avoiding liquidation

• Prioritize BTC-backed loans with conservative LTV and well-defined liquidation policies.
• Keep a cushion of BTC as collateral and plan ahead for market moves.
• If market volatility spikes, consider repayment or adding collateral before thresholds tighten.

What Sats Terminal adds to your risk picture

• Transparency: you can compare offers and see exactly how each lender treats liquidation risk before borrowing.
• Self-custody emphasis: your assets remain in your Privy wallet and are not moved without your consent.
• Multi-chain support: access lenders across BASE, Ethereum, Arbitrum, Polygon, Optimism, and BSC, with automatic bridging when needed.
• No automatic interventions: you control when and how you adjust exposure; Borrow provides visibility and options, not enforcement.

Important caveat: liquidation risk is inherent in BTC-backed lending, especially in volatile markets. Use Borrow to map risk, not to eliminate price movement, and act proactively to protect your position.

Quick tips for ongoing risk management

• Regularly review LTV, collateral value, and liquidation prices on the dashboard.
• If you see LTV climbing, add collateral or repay to restore a comfortable margin.
• When planning liquidity needs, factor in potential market moves and lender-specific thresholds.
• Prefer lenders with clear, verifiable parameters and avoid situations where liquidation terms are opaque.

FAQs

Q: What is liquidation risk in BTC-backed loans?

A: It is the risk that your loan will be liquidated if your collateral value falls relative to the loan, crossing a lender’s threshold. On Borrow, you see the exact LTV and thresholds before borrowing and can act to mitigate risk.

Q: Can Borrow automatically prevent liquidations?

A: No. Borrow does not auto-adjust collateral or intervene in liquidations. It provides visibility and tools to manage your exposure and stay within lender terms.

Q: What steps help me avoid liquidation on Sats Terminal Borrow?

A: Keep a healthy LTV by adding collateral or repaying, choose lenders with favorable thresholds, diversify where possible, and monitor the dashboard for real-time risk signals.

Q: How is LTV calculated across different lenders?

A: LTV is the loan amount divided by the current collateral value for each lender, based on that lender’s terms and the market price of BTC at the time of evaluation.