Collateral Ratio Drift

Collateral ratio drift is the gradual divergence of a position's actual collateralization level from the protocol's required minimum due to price volatility or accrued interest. As the value of the underlying crypto asset fluctuates, the ratio of collateral to debt changes dynamically.

If the protocol fails to account for this drift in real-time, a position may become under-collateralized without triggering a liquidation. This creates a hidden risk where the protocol's solvency is compromised.

Effective risk management requires constant monitoring and automated liquidation triggers to prevent drift from turning into systemic failure.