The liquidation mechanism is like a safety valve for lending protocols — it determines whether the system can withstand pressure at critical moments.

Imagine this scenario: BNB crashes 40% within 24 hours. Under such extreme market conditions, positions with collateralization ratios maintained between 150% and 200% will be instantly at risk of liquidation. Whether the system can remain stable at this moment depends on two key factors.

First is the liquidity depth of the liquidation auction — can the liquidation discount quickly attract liquidation bots to intervene? Second is the size of the insurance fund, which acts as a last line of defense to cover potential bad debts. The good news is that most mainstream lending protocols use high-liquidity assets like BNB and BTCB as collateral, and trading pairs on DEXs are sufficiently deep, facilitating rapid liquidations.

However, there is a hidden risk: when the entire market plunges into panic, liquidity can evaporate in an instant, causing liquidation processes to be delayed or even stalled.

For ordinary users, the solution is simple — don’t wait for the system to issue an alert. Proactively increase your collateralization ratio to 250% or higher when the market begins to show signs of fatigue. Additionally, if you hold governance tokens of related protocols, keep a close eye on the ratio of the insurance fund to total debt. The healthier this ratio, the safer your funds are.