What triggers liquidation of my pledge?

What triggers liquidation of my pledge?

Liquidation triggers when your position's collateral value falls too close to your loan value, specifically, when your loan-to-value ratio reaches the market's liquidation threshold (LLTV). Until that line is crossed, your pledge is not at risk of liquidation, no matter how the market moves in between.

Two things move your LTV toward that threshold. The obvious one is your collateral falling in price: if the value of what you've pledged drops, the same loan now represents a larger share of a smaller collateral base, pushing your LTV up. The less obvious one is your loan balance growing over time as interest accrues, which raises the numerator even if your collateral price holds steady. Either can move you toward the threshold; a sharp price drop is just the fastest way to get there.

The threshold itself is fixed for the market you borrowed in. On an isolated market, the LLTV is set when the market is created and doesn't change, so you always know exactly what LTV level triggers liquidation for your position. Well-structured institutional lending also leaves a deliberate buffer between the LTV you're allowed to borrow at (origination) and the LLTV where liquidation becomes possible, which is the room you have to add collateral or repay before liquidation is on the table.

If your position does cross the threshold, liquidation is automatic and executed by keepers, independent actors who repay part of your loan in exchange for a discounted portion of your collateral plus a bonus. It isn't a negotiation and there's typically no grace period once the line is crossed, which is why monitoring your position and maintaining a cushion above the threshold matters.

Related: LTV vs LLTV: origination threshold vs liquidation trigger and Margin call and liquidation mechanics.