What is Liquidation Protection?

Liquidation Protection is a feature on Lava that automatically adds additional bitcoin to your loan collateral if your loan-to-value ratio (LTV) exceeds 80%.

LTV refers to the ratio between the value of your loan capital and the collateral backing it. If the value of the collateral drops, your LTV increases. Most loans on Lava initiate at 50% LTV (though you can manually set it to be lower), and loans are liquidated at 93% LTV. If your LTV rises, you can protect yourself from liquidation by paying back a portion of the loan or adding collateral, both of which reduce your LTV.

Liquidation Protection automatically moves bitcoin from your bitcoin balance on Lava to the collateral balance for your loan if your LTV rises above 80%. This means that you’ll have an additional buffer against liquidation without having to manually intervene. BTC that is held in your regular bitcoin balance on Lava will be added to your collateral balance until your loan reaches that LTV at which it was initiated.

This means that you will not be liquidated if your total bitcoin balance on Lava provides enough collateral for your loan. You’ll be notified by Lava when your LTV rises, so you can still manually add additional collateral or pay back a portion of your loan. Liquidation Protection just ensures this happens automatically using your existing balance.