# Dynamic Threshold Adjustment ⎊ Area ⎊ Resource 2

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## What is the Adjustment of Dynamic Threshold Adjustment?

Dynamic threshold adjustment refers to the automated modification of risk parameters within a financial protocol based on real-time market conditions. This mechanism is crucial for maintaining stability in volatile cryptocurrency markets, where static thresholds can lead to either excessive liquidations or significant bad debt accumulation. The adjustment process typically responds to changes in asset volatility or liquidity.

## What is the Volatility of Dynamic Threshold Adjustment?

The primary driver for dynamic threshold adjustment is market volatility, which directly impacts the risk profile of collateralized positions. When volatility increases, the system automatically raises collateral requirements or lowers liquidation thresholds to protect against rapid price drops. Conversely, during periods of low volatility, thresholds may be relaxed to improve capital efficiency for users.

## What is the Risk of Dynamic Threshold Adjustment?

By dynamically adjusting parameters, protocols aim to mitigate systemic risk and prevent cascading liquidations. This approach ensures that the protocol remains solvent by proactively adapting to changing market dynamics. The effectiveness of dynamic threshold adjustment depends on the accuracy of the underlying volatility models and the speed of oracle updates.


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## [Delta Adjustment](https://term.greeks.live/term/delta-adjustment/)

## [Maintenance Margin Threshold](https://term.greeks.live/term/maintenance-margin-threshold/)

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**Original URL:** https://term.greeks.live/area/dynamic-threshold-adjustment/resource/2/