Understanding your credit limit and liquidation risk is essential to borrowing safely. This page covers how your limit is calculated, what liquidation is, and how to avoid it.
How Your Credit Limit Is Calculated
Your credit limit is the maximum amount you can borrow in USD value:
Credit Limit = sum of (amount supplied in USD x collateral factor for that asset)
Example:
You supply $1,000 USDC with an 80% collateral factor.
Credit Limit = $1,000 x 0.80 = $800.
If you supply multiple assets, add up the credit from each one.
How Credit Remaining Is Calculated
Credit Remaining shows how much more you can borrow:
Credit Remaining = credit limit minus total borrowed in USD
Example:
Credit Limit = $800.
You borrow $600.
Credit Remaining = $800 minus $600 = $200.
Credit Remaining Percentage
This percentage shows how close you are to liquidation:
100% means you're using none of your credit.
50% means you're using half your credit.
0% means you're at liquidation risk.
The lower this number, the more risk you're in. Think of it as a safety buffer: the more credit you leave unused, the more a price move can go against you before liquidation becomes possible.
What Is Liquidation?
Liquidation occurs when your Credit Remaining drops to $0, or your borrowed value exceeds your credit limit. When this happens:
A liquidator can repay part of your debt.
In return, the liquidator seizes your collateral at a discount.
You lose collateral value.
Liquidation is automatic and permissionless: anyone can act as a liquidator once a position becomes eligible. That's why monitoring matters.
Liquidation Details
A liquidator can repay up to 50% of your outstanding borrow in a single liquidation event.
Liquidation incentive: the liquidator receives a 7% bonus on the collateral seized.
Protocol reserve: 3% of the seized collateral goes to the protocol.
Total impact to you: a 10% discount given away.
Example:
You owe $1,000 in borrowed assets.
Your collateral is $900 in USD value.
A liquidator repays $500 of your debt.
You lose roughly $550 in collateral, at a 10% discount.
How to Monitor Your Position
Check your credit remaining percentage regularly, especially in volatile markets.
Watch the prices of both your collateral and your borrowed assets.
Set personal alerts or reminders so a sharp move doesn't catch you off guard.
How to Avoid Liquidation
Monitor your positions regularly.
Keep your credit remaining percentage well above 0%.
Repay loans when your credit remaining drops.
Add more collateral when needed.
Watch price movements in both your collateral and borrowed assets.
Price changes can work for or against you. If collateral prices fall or borrowed asset prices rise, your credit remaining shrinks. Act quickly if this happens.
What Triggers Liquidation?
Liquidation can be triggered by:
Collateral values dropping as market prices fall.
Borrowed asset values rising, so you owe more in USD value.
Your credit remaining hitting 0%.
Any of these can put you at risk, so stay vigilant.
Frequently Asked Questions
Will I be warned before liquidation?
Moonwell shows your credit remaining in the app, but liquidation itself is automatic once your position becomes eligible. There's no grace period, so monitor proactively.
How much can I lose in a liquidation?
A liquidator can repay up to 50% of your borrow per event and seizes the corresponding collateral at a 10% discount. Multiple events can occur if your position stays unhealthy.
Can I prevent liquidation once I'm close?
Yes. Repay part of your loan or add collateral to restore your credit remaining before a liquidation occurs.
Does liquidation close my whole position?
Not necessarily. A single event repays up to 50% of the borrow. Your remaining position continues, healthier than before, but still worth monitoring.