Liquidation Threshold Warning

A Liquidation Threshold Warning is a proactive alert sent by a trading platform or decentralized protocol to a user when their collateral value approaches the minimum level required to maintain an open leveraged position. As asset prices fluctuate, the ratio of the collateral value to the borrowed debt changes.

If this ratio drops toward the liquidation threshold, the system triggers this warning to notify the trader that they are at risk of having their position automatically closed to repay the debt. This mechanism is critical in preventing insolvency for the protocol and protecting the lender.

It serves as a final opportunity for the trader to deposit more collateral or reduce their position size. Understanding this warning is essential for managing systemic risk and avoiding forced exit events in volatile markets.