Liquidation Price Calculator

What is Liquidation Price?

Liquidation price is the collateral asset price at which your health factor drops to 1.0, triggering the protocol's liquidation mechanism. When the oracle-reported price reaches this level, anyone can repay a portion of your debt and claim your collateral at a discount (the liquidation bonus).

The gap between the current market price and your liquidation price is your safety margin. A larger gap means your position can withstand bigger price drops without being liquidated.

How to Interpret Results

• Safety margin > 50% — Your position is well-protected against typical market volatility.
• Safety margin 20–50% — Moderate risk. A sharp drawdown or flash crash could put your position at risk.
• Safety margin < 20% — High risk. Consider adding collateral, repaying debt, or setting up liquidation alerts.

Remember that liquidation prices shift as interest accrues on your debt. Borrow APY continuously increases your debt, which pushes the liquidation price closer to the current market price over time.

What Happens During a DeFi Liquidation?

Liquidation is the protocol's mechanism for protecting lenders when a borrower's position becomes undercollateralized. It is not an instant wipeout of your entire position — it is a structured process with specific steps, but it does result in a financial penalty. Understanding how it works helps you take action before it happens.

1. Health factor drops to 1.0. As the market price of your collateral declines (or your debt grows from accrued interest), your health factor approaches the liquidation threshold. When it reaches 1.0, your position is eligible for liquidation. The protocol itself does not liquidate you — it simply allows others to do so.
2. Liquidation bots detect the opportunity. Specialized MEV bots and liquidation bots monitor every borrowing position on-chain in real time. These bots compete aggressively to be the first to liquidate eligible positions, often within the same block that your health factor crosses 1.0. There is no grace period on any major lending protocol.
3. A liquidator repays a portion of your debt. The bot calls the protocol's liquidation function, repaying some of your outstanding debt using its own funds. On Aave V3 and Spark, the maximum close factor is 50% — meaning up to half your debt can be repaid in a single liquidation. If your health factor drops below 0.95 on Aave V3, the close factor increases to 100%, allowing full liquidation.
4. The liquidator claims your collateral at a discount. In exchange for repaying your debt, the liquidator receives an equivalent value of your collateral plus a liquidation bonus (typically 4-10% depending on the asset). This bonus is the liquidator's profit and your penalty. For example, if a bot repays $5,000 of your USDC debt, it might receive $5,400 worth of your ETH collateral (with an 8% bonus).
5. Your position survives but is smaller. After liquidation, your health factor improves because the debt-to-collateral ratio is better. However, you now hold less collateral than before. Your remaining position continues to accrue interest and could face another liquidation if prices keep falling.
6. The penalty adds up quickly. Liquidation penalties typically range from 5% to 10% of the liquidated collateral value. On volatile assets like WBTC or ETH, Aave V3 charges a 5-6.5% penalty. On less liquid assets, the penalty can reach 10% or more. In a cascading liquidation scenario where prices drop sharply, you could face multiple partial liquidations, each taking its penalty.
7. Gas costs are the liquidator's problem, but the penalty is yours. The liquidator pays the gas fee to execute the transaction. However, the liquidation bonus that makes the gas cost worthwhile comes directly from your collateral. On Ethereum mainnet, liquidators need the bonus to exceed gas costs (which can spike during high congestion), meaning small positions may survive brief dips simply because liquidation is not profitable for bots.

Liquidation Mechanics by Protocol

Each lending protocol implements liquidation differently. The close factor determines what percentage of a borrower's debt can be repaid in a single liquidation transaction — a higher close factor means more of your position can be liquidated at once.

Flash liquidations allow bots to use flash loans to execute liquidations without holding any capital upfront — they borrow funds, repay the borrower's debt, claim discounted collateral, sell it, and repay the flash loan all in a single atomic transaction. This makes liquidation extremely efficient and means no undercollateralized position survives for more than a few blocks, regardless of the liquidation size.

How to Avoid Liquidation

The best liquidation is the one that never happens. While you cannot control market prices, you can manage your position to maintain a comfortable safety margin. Here are practical strategies used by experienced DeFi borrowers.

• Know your liquidation price before borrowing. Use this calculator to determine exactly where your position becomes unsafe. Never borrow the maximum amount — always leave a buffer for market volatility.
• Keep a safety margin above 50% in volatile markets. If ETH is at $3,000 and your liquidation price is $2,800, a 7% drop wipes you out. A safety margin of 50% or more gives you breathing room during flash crashes and high-volatility events.
• Set up automated alerts. Use a monitoring service like DeFi Monitor to receive Telegram or Discord notifications when your health factor drops below a threshold. Getting an alert at health factor 1.5 gives you time to act before reaching 1.0.
• Monitor oracle prices, not just exchange prices. Liquidation is triggered by the protocol's oracle price, not by the spot price on your favorite exchange. Chainlink and Chronicle oracles aggregate prices from multiple sources and may lag during fast moves. Check what price the protocol sees, not what Binance shows.
• Make partial repayments to increase your safety margin. You do not need to repay your entire loan — even a small debt repayment improves your health factor. If your health factor is at 1.3 and you repay 20% of your debt, it could jump to 1.6 or higher.
• Use stablecoins as collateral to reduce volatility risk. Borrowing against stablecoins (like USDC or DAI) eliminates collateral price risk. Your liquidation price becomes a function of your debt-to-collateral ratio only, not of market movements. The trade-off is lower LTV ratios and less capital efficiency.
• Watch for cascading liquidations during market crashes. Large market drops can trigger waves of liquidations, which in turn dump more collateral onto the market, pushing prices further down. During these events, even positions with seemingly safe margins can be at risk. If you see large liquidations happening on-chain, consider proactively reducing your exposure.