Borrowing in DeFi can boost your crypto game, but beware: liquidation risk is real. Know it to borrow wisely and keep your assets safe. Let’s break it down! (1/11)🧵

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2/ What’s liquidation in DeFi? When your collateral’s value falls too low, the protocol sells it to repay your loan. It protects lenders but can sting borrowers.

3/ Health Factor: Your loan’s safety score. Above 1 = safe, below 1 = risk of liquidation. Keep it high to stay out of trouble!

Liquidation Threshold: The line where your collateral stops covering your debt. Each asset has one (e.g., 80% for ETH). Don’t cross it!

4/ Price Volatility: Crypto prices can crash fast. If your collateral drops, so does your Health Factor. Pick stable assets or stay vigilant.

Liquidation Penalty: Get liquidated, and you’ll pay 5-15% extra on top of losing collateral. It’s a pricey lesson—avoid it!

5/ How to Avoid Liquidation:
• Borrow less
• Track prices
• Diversify collateral
• Use stablecoins
• Add collateral or repay debt during downturns

7/ ETH drops to $625, collateral = $1,250, Health Factor = 1. 

Liquidation hits: 1.84 ETH sold to cover $1,000 + 15% penalty. You’re left with 0.16 ETH. Act fast next time!

8/ Borrowing in DeFi can be a powerful tool when used wisely. Want to learn more? Dive into the full blog here -

8/ Borrowing in DeFi can be a powerful tool when used wisely. Want to learn more? Dive into the full blog here - https://community.pike.finance/the-key-point-for-borrowers

9/ *This educational content prepared by community members is for educational purposes only and not financial advice. If you spot any inaccuracies, let us know!

6/ Example: You deposit 2 ETH ($4,000), borrow $1,000. Health Factor = 3.2 (safe). 

ETH falls to $1,000 each, collateral = $2,000, Health Factor = 1.6 (risky).