When you borrow crypto, you don’t just hand over your private key—you lock up something of value as collateral, an asset pledged to secure a loan, often used in decentralized finance to reduce lender risk. This is where the collateral ratio, the percentage value of assets locked compared to the amount borrowed comes in. It’s not a fancy term—it’s the line between keeping your funds safe and losing them overnight. If you’ve ever used Aave, MakerDAO, or even a crypto-backed credit card, you’ve dealt with this number.
The collateral ratio tells lenders how much safety cushion you’ve given them. For example, if you want to borrow $1,000 in USDC and you lock up $1,500 in ETH, your collateral ratio is 150%. That means for every dollar you borrow, you’ve put up $1.50 as security. Most DeFi platforms require at least 130% to 150%. If ETH drops hard and your ratio falls below 110%, your position gets automatically sold off—called a liquidation, the forced sale of collateral when loan security falls below a set threshold. This isn’t a glitch. It’s the system working as designed.
Stablecoins like MAI (MIMATIC), a decentralized stablecoin on Polygon that requires over-collateralization to maintain its $1 peg rely on this exact mechanism. You can’t mint MAI without locking up more crypto than the value you’re creating. That’s why the collateral ratio isn’t just a number—it’s the backbone of trust in DeFi. Without it, stablecoins would collapse. Without it, lending platforms would go bankrupt. And without understanding it, you’re gambling with your assets.
Some platforms, like Nomiswap or OEX, let you use crypto as collateral for trading leverage. Others, like QiDAO, tie your ability to borrow directly to how much you’ve locked. Even in regulated spaces, like crypto-backed loans from Canadian exchanges, the same math applies. If you’re using crypto to buy a car, a house, or even just to trade futures, the collateral ratio is the invisible hand holding your position together—or pulling it apart.
Look at the posts below. You’ll find real cases: how MAI keeps its value locked in Polygon, why some exchanges ban certain collateral types, and how users lost funds because they ignored their ratio. You’ll also see how platforms like EpicHero use reflection rewards tied to locked assets, and how Vietnam’s new rules force exchanges to treat collateral like cash. This isn’t theory. It’s happening right now, in real wallets, on real blockchains. If you’re using crypto for anything beyond holding, you need to know this number. Not just what it is—but how to control it.
Learn how liquidation works in collateralized crypto loans, why it happens instantly on DeFi platforms, and how to avoid losing your assets. Compare DeFi liquidations to traditional loan processes and discover practical steps to stay safe.
