Last updated: April 25, 2026
Margin call and liquidation are not the same thing. Confusing them costs borrowers real money. A margin call is a warning — typically a 24-hour window to add collateral or repay before the situation worsens. A liquidation is the lender automatically selling your collateral with no opportunity to act. This guide walks through the precise timeline of how each works, the five concrete actions you can take during a margin call window, and the small differences between CeFi and DeFi liquidations that have major financial consequences.
The full liquidation timeline
A typical CeFi crypto loan has three LTV thresholds, each with a specific consequence:
- Initial LTV (you set this, often 50%): the LTV at loan origination. Everything is fine.
- Margin Call LTV (typically 70%): the threshold that triggers a notification. You receive an email, app push, sometimes a phone call. Your account is flagged for the next 24 hours.
- Liquidation LTV (typically 80-85%): the threshold that triggers automatic forced liquidation. No additional warning.
Worked example. You start at 50% LTV with $100K of BTC collateralizing a $50K loan.
- BTC drops 30%: New LTV: 71%. Margin call triggered.
- BTC drops 41% from start: New LTV: 85%. Liquidation triggered.
The gap between margin call and liquidation is critical. In this example, you have only an 11% additional drop from margin call to liquidation. If BTC is in the middle of a fast drawdown, that gap can disappear in hours.
What happens in the margin call window
The moment you hit margin call LTV, the clock starts. Three things happen on the lender side: you get notified (email + app push), the lender flags your account for monitoring, and the countdown starts. Most lenders give 24 hours; a few give 48; some are 12. Read your specific agreement.
Your five options during a margin call
1. Add more collateral. The cleanest fix. Send additional BTC, ETH, or stablecoins from your wallet to the lender.
2. Repay part of the loan. Send fiat or stablecoins to pay down principal. Same immediate effect.
3. Convert volatile collateral to stablecoin. Eliminates further price-drop risk but also removes your upside. Note: this conversion is a taxable event — see our Form 1099-DA guide.
4. Refinance to a lender with higher LTV tolerance. The mechanics are in Refinancing Your Crypto Loan.
5. Accept partial liquidation. Let the lender liquidate just enough to bring LTV back below the margin call threshold.
Liquidation: what actually happens
- The lender sells just enough collateral to bring LTV back to a safe level (often 60-65%).
- The lender takes a liquidation fee, typically 1-2% of the loan amount.
- The remaining collateral, after debt and fees, stays in your account.
- You can typically continue the loan with the remaining collateral.
DeFi liquidations are different
No margin call window. DeFi liquidations are based on real-time on-chain prices. The moment your position breaches the liquidation threshold, anyone can call the contract and trigger the liquidation.
Higher cost. The liquidator gets paid via a “liquidation bonus” — typically 5-10% of the liquidated collateral. The trade-off: DeFi loans are typically cheaper on rate during normal operation.
Three real-world case studies
Case 1: The investor who saved the position. March 2024 BTC drop. Borrower at 55% LTV got margin called at 71%. Wired $20K to repay principal, dropping LTV to 56%.
Case 2: The investor who got partially liquidated. Same drawdown. Borrower at 65% initial LTV, hit margin call at 73%. Did not respond. At 84% LTV, the lender liquidated 35% of collateral.
Case 3: The DeFi user with no warning. May 2025 ETH flash crash. Borrower on Aave at 70% LTV. ETH dropped 18% in 90 minutes. Liquidator paid off the loan and took the collateral plus an 8% bonus.
Frequently asked questions
What is the difference between a margin call and a liquidation?
A margin call is a notification that your LTV has breached the warning threshold; you typically have 24 hours to fix it. A liquidation is automatic forced selling of your collateral when your LTV breaches the higher liquidation threshold.
How long do I have to respond to a margin call?
On most centralized lenders, 24 hours from the time of notification. DeFi protocols typically give zero warning.
Can a lender liquidate without notifying me?
If your LTV breaches the liquidation threshold without first crossing the margin call threshold (rare during a flash crash), yes.
Do I get the leftover collateral after liquidation?
Yes, after the lender takes the principal, accrued interest, and the liquidation fee.
Are DeFi liquidations different from CeFi liquidations?
Yes. DeFi liquidations are executed by third-party liquidators who pay off your loan in exchange for your collateral plus a discount.
