Cryptocurrency liquidations occur when a trader’s leveraged position in digital assets is forcibly closed by an exchange or protocol. This happens because the market value of their collateral falls below a specific maintenance margin level. The process is automatic and designed to prevent further losses to the platform or other participants.
Context
The situation surrounding cryptocurrency liquidations frequently highlights market volatility and the risks associated with high-leverage trading in decentralized finance. A key debate involves the fairness and transparency of liquidation mechanisms, with future developments focusing on more sophisticated risk models and user-friendly tools to prevent unexpected position closures.
The crypto market experienced a significant downturn as new US tariffs on Chinese imports led to widespread liquidations and price drops across major digital assets.
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