When you use ETH collateral, Ethereum held as security to borrow other assets in decentralized finance. Also known as Ethereum-backed loans, it’s how millions unlock cash without selling their crypto. You lock up your ETH on a platform like Aave or MakerDAO, and they lend you USDC, DAI, or even stablecoins tied to fiat. It sounds simple—until the price drops.
That’s where liquidation risk, the danger of your collateral being automatically sold if its value falls too far. Also known as margin call in crypto, it’s what turns smart moves into losses. If ETH drops 30% and you’re borrowing at 75% loan-to-value, your position gets wiped out. You don’t just lose your loan—you lose your ETH too. This isn’t theoretical. In 2022, over $2 billion in ETH collateral got liquidated in a single week. People didn’t get warnings. They got silent, automated sales.
And it’s not just about price. DeFi loans, unregulated, non-bank crypto borrowing systems that rely entirely on smart contracts. Also known as crypto lending protocols, they don’t have customer service, no human review, and no mercy. If your collateral falls below the threshold, the code executes. No calls. No emails. Just a transaction on-chain. That’s why smart users keep extra buffer—usually 150% collateralization, not the minimum 110%. They know the market doesn’t care about your rent or your job. It only cares about the price feed.
Some think ETH collateral is safe because Ethereum is big. But size doesn’t stop panic. When Bitcoin crashed in 2022, ETH followed. When FTX collapsed, DeFi lenders rushed to pull liquidity. The result? A cascade of liquidations that dragged down dozens of projects. Even "stable" lending platforms like MakerDAO had to raise their collateral requirements overnight.
What you’ll find below are real stories of people who used ETH collateral—and what happened next. Some made money. Most lost it. You’ll see reviews of platforms that handle it well, and others that don’t. You’ll learn how to spot fake yield farms pretending to be safe loans. And you’ll find out why some traders treat ETH collateral like a loaded gun—useful, powerful, but deadly if you don’t know how to hold it.
Liquity (LQTY) is a DeFi protocol offering interest-free loans backed by ETH. Borrow stablecoins with just 110% collateral, redeem anytime, and earn rewards by staking LQTY. No interest. No middlemen. Just code.
