Managing Liquidation Risk in Leveraged Positions
Keep your positions safe during volatility
Continuum doesn't liquidate anyone. The lending markets you borrow from do, and that's where leveraged positions actually die. This is how to stay out of the way.
Step by step
Read the health factor
Lending protocols compress your risk into one number. Below 1.0 you get liquidated. It falls when collateral loses value or when debt grows.
Every protocol computes it slightly differently. Learn the formula for the one you're actually using.
Borrow less than you're allowed to
A protocol permitting 80% LTV is not recommending 80% LTV. At 50-60% you can survive a much larger drop.
Work out the exact price that liquidates you, then set an alert well above it.
Hold something back
Deploying every last dollar leaves nothing to top up collateral or pay down debt when the position moves against you.
20-30% in reserve is a reasonable floor for anything levered.
Automate the exit
There are no native stop-losses on-chain. Keeper bots and automation services will de-risk a position at a level you set in advance.
Test it with small size first. Automation that has never fired is a guess.
Spread across venues
Putting every levered position in one lending market concentrates smart contract risk in one place.
Spread by collateral type and underlying too, not just by protocol.
Price the bad day
Ask what a 50% overnight gap does to the position. If the answer is that you're wiped out, the leverage is too high, whatever the expected return says.
The market can stay irrational longer than you can stay solvent.
What can go wrong
- Liquidation is faster than you are, especially overnight.
- Network congestion peaks exactly when everyone is trying to rescue a position at once.
- Liquidations feed price drops, which trigger more liquidations.
- A partial liquidation can leave you worse positioned than a full one.