If you borrow against your Bitcoin or Ethereum, liquidation is the risk you care about most. It’s what happens when your collateral drops far enough in price that the platform steps in to sell a portion (or all) of it to cover your loan.  

The good news: liquidation risk is largely avoidable once you understand how it works and choose the right lender to work with.

This guide covers:

• What liquidation actually is (CeFi vs DeFi)

• How LTV, health factor, and thresholds work

• What fees/penalties can apply

• Practical, math-driven ways to avoid liquidation

• A pre-borrow checklist you can use today

What liquidation actually means

When you take out a crypto-backed loan, you’re pledging an asset (like BTC or ETH) as collateral. The loan’s safety depends on one key metric: Loan-to-value (LTV).

LTV = (Loan balance ÷ collateral value) × 100

As prices move:

• If your collateral rises in value, your LTV goes down and your position becomes safer. At that point, some lenders, including APX, let you draw additional funds to return to your original LTV, giving you flexible access to liquidity as markets move.

• If your collateral drops, your LTV rises and your risk increases.  

Every lender sets a maximum allowable LTV (the liquidation threshold). Once your LTV crosses it, the platform will automatically sell enough (or all) of your collateral to restore safety.  

That’s liquidation.

APX Lending uses a 90% liquidation LTV—a deliberately high, borrower-friendly threshold. If your loan balance exceeds 90% of collateral value, we’ll liquidate your collateral to cover the loan. Long before that, at 80% LTV, we trigger a soft margin call and send six-hourly alerts so you can top up or repay in time. In other words, no surprises.  

Curious about how other platforms in the space approach LTV? Check out our article comparing company LTVs, APRs, minimums, fees, and more.

Why liquidations happen

Liquidations aren’t arbitrary. They’re just math. The main triggers are:

1. Price volatility: Rapid drawdowns in Bitcoin or Ethereum prices raise your LTV as the value of your collateral decreases in relation to your loan.

2. High starting leverage: Opening a loan near the maximum LTV leaves little buffer. If you are cautious and looking at taking out a crypto-backed loan, it doesn’t hurt to start with a lower LTV. We offer origination LTVs from 20% - 60%, depending on your risk tolerance.

3. Inattention: Failing to monitor your position or add collateral during dips. This is why we advise working with lenders who offer built-in alerts.

When a lender manages risk properly—through clear thresholds, fast notifications, and segregated collateral—liquidation is a rare event.

The thresholds that matter

While every lender defines them slightly differently, the main tiers are:

• Origination LTV: Where your loan begins (e.g., 20% - 60%).

• Warning LTV or soft margin call: The range where you’ll be notified to add collateral (e.g., 80%).

• Liquidation LTV: The level at which collateral may be sold automatically (e.g., 90%).

At APX Lending, we keep borrowers informed well before they approach liquidation. That’s the difference between reactive and proactive risk management.

The math in action

Example:

• Collateral: 1 BTC = $90,000

• Loan Amount: $36,000

• Initial LTV = 40%

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If Bitcoin falls 30%, your collateral value becomes $63,000 and your LTV rises to $36,000 ÷ $63,000 = 57%.

Still safe.

If Bitcoin falls 50%, your collateral is $45,000 and your LTV jumps to 80%. Now you’re near or at liquidation territory.

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The takeaway: the lower your starting LTV, the more room you have to ride out volatility.

Fees and penalties

When liquidation occurs, lenders may sell part of your collateral and charge transaction costs such as a liquidation fee or spread, plus any interest accrued until settlement.

At APX, we take a more conservative approach. To protect clients and maintain transparency, we liquidate the entire collateral position once the loan breaches the 90% threshold. This ensures the loan is fully settled even in fast-moving markets where partial liquidation might not cover the outstanding balance. It’s a simpler, safer process designed to preserve capital and eliminate uncertainty during market volatility.

How to avoid liquidation

A simple checklist for borrowers:

1. Start conservatively.
   Keep your opening LTV below 50%. Many borrowers target 30–40% for core assets like BTC or ETH. We offer origination LTVs as low as 20%.

2. Monitor your LTV regularly.
   Market conditions can change hourly. Set personal alerts well below your lender’s warning threshold. Also ensure that you’re working with a provider that has a clear, easy-to-read LTV dashboard.

3. Maintain dry powder.
   Keep some extra collateral or fiat so you can either top up or pay back a portion of your loan and lower your LTV if markets turn.

4. Respond quickly to notifications.
   Adding even a small amount of collateral early can reset your safety buffer.

5. Understand your lender’s rules.
   Know exactly what triggers liquidation, how collateral is held, and whether liquidation is partial or full.

6. Work with a regulated lender.
   Platforms that follow financial-market standards are required to maintain clear, auditable risk processes and segregated custody.

CeFi vs DeFi: Why transparency matters

In decentralized lending, liquidation happens automatically by code. In centralized, regulated lending, liquidation is guided by internal policy and oversight.

At APX, your assets are held in insured, segregated custody with independent trustees. Liquidation thresholds are transparent, notifications are proactive, and your collateral is never rehypothecated.

That’s not just safer—it’s verifiable.

Pre-borrow safety checklist

• I know my starting and maximum LTV levels.

• I’ve modeled 25%, 35%, and 50% market drawdowns.

• I’ve set alerts and have spare collateral ready.

• I understand my lender’s liquidation process and custody arrangements.

• I’ve reviewed fees and timelines in advance.

If you can check every box, you’re already ahead of 90% of borrowers.

The bottom line

Liquidation isn’t random. It’s just math. When you borrow against crypto through a transparent, regulated platform, you stay in control.

At APX Lending, we believe access to liquidity shouldn’t come at the cost of sleepless nights. Our approach keeps borrowers informed, collateral segregated, and risks clearly defined, so you can borrow with confidence.

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