Liquidation

What is Liquidation?

The forced sale of a borrower's collateral when its value drops below a threshold, used to repay the outstanding loan. With Lygos, liquidation outcomes are pre-signed in the Discreet Log Contract before any collateral is committed. This means you know exactly what happens at every price point before you enter the loan. There are no surprises and no discretionary decisions by the lender. If a liquidation event occurs, the pre-signed transaction executes automatically on the Bitcoin blockchain according to the terms you agreed to upfront.

Full Definition

Liquidation in crypto lending occurs when the value of a borrower's collateral falls below a predefined threshold (the liquidation LTV). The lender sells enough collateral to cover the outstanding loan balance plus any fees. Liquidation protects the lender from losses but can result in significant losses for the borrower if it happens during a sharp market downturn. The speed and fairness of liquidation varies significantly across platforms, including whether borrowers receive advance warning, whether there is a grace period, and how excess collateral is returned.

How Lygos Uses This

With Lygos, liquidation outcomes are pre-signed in the Discreet Log Contract before any collateral is committed. This means you know exactly what happens at every price point before you enter the loan. There are no surprises and no discretionary decisions by the lender. If a liquidation event occurs, the pre-signed transaction executes automatically on the Bitcoin blockchain according to the terms you agreed to upfront.

Liquidation Calculator

Full calculator

Starting LTV

20%50%70%

Starting LTV

50%

Lygos default: 50%

Liquidation price

$58,824

BTC must drop

41%

to trigger

Loading live BTC price... $100,000

How Lenders Compare

	Lygos	Ledn	Nexo	Unchained
LTV	50%	50%	50% (BTC)	50% (200% CTP)
Custody	Non-custodial (DLC)	Custodial	Custodial	Collaborative multisig
Technology	Discreet Log Contracts (Bitcoin-native)	Centralized custody	Centralized custody	2-of-3 multisig (manual)

Full comparison

Why this matters for borrowers

Understanding Liquidation is critical when comparing loan offers. This concept directly affects how much you pay, how much collateral you need, or what happens if market conditions change during your loan.