Liquidation Prevention

Definition ∞ Liquidation prevention refers to strategies and mechanisms designed to avoid the forced sale of collateralized digital assets in decentralized finance. These measures typically involve maintaining sufficient collateral ratios, actively managing loan positions, or utilizing automated systems to add collateral when market prices approach liquidation thresholds. The goal is to protect borrowers from losing their pledged assets due to market volatility or sudden price drops. Effective prevention helps maintain stability within lending protocols and safeguard user funds.
Context ∞ In DeFi news, liquidation prevention is a frequent topic, especially during periods of high market volatility where numerous positions face risk. Discussions often center on the effectiveness of various protocol designs, such as dynamic interest rates or collateral adjustment mechanisms. The ability of users to avoid liquidation is critical for the perceived safety and long-term viability of decentralized lending platforms.