Cryptocurrency Liquidations

Definition ∞ 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.