What Is Overcollateralization?
Posting more collateral than the loan is worth, so a price swing does not wipe it out.
Definition
Overcollateralization means the deposit is worth more than what it backs, typically 110% to 200%. The excess is the room the position has to move before anyone gets hurt.
How it works
At a 150% requirement, borrowing $100 means depositing $150. Fall past the liquidation threshold and the position gets closed. More buffer means more safety and less capital doing useful work, and there is no setting that gives you both.
In Continuum
Minting on Continuum is collateralized at 100%, not over: your stablecoins back the pair at full value, so there is nothing to liquidate. It only enters the picture when you take an L token to a lending market like Kamino or Marginfi. Their 130-150% requirement is where the health factor starts to matter.
Related terms
Assets deposited to back or secure a financial position.
Your position gets closed for you when the collateral no longer covers the debt.
One number that tells you how close a borrowed position is to being closed.
Borrowed money makes a position bigger, which multiplies the gain and the loss alike.
More trading terms
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