Borrow Limits & Self-Liquidation
In Compound v3, the Borrow Limit shows the maximum amount you can safely borrow against your collateral. Staying well below this limit—and proactively reducing your position—is key to avoiding forced liquidations.
Borrow Limits
- Definition:
Borrow Limit = Collateral Value × Collateral Factor - Usage Indicator: In the UI, this appears as a percentage meter (e.g., “60% used”).
- Best Practice: Treat the protocol’s maximum as an absolute cap. Maintain a personal cap (e.g., 75% of the limit) to give yourself breathing room.
Self-Liquidation
Self-liquidation means taking proactive steps to reduce your borrow usage before reaching the liquidation threshold. This often involves repaying part of your debt or adding collateral.
Why Self-Liquidate?
- Avoid Penalties: Liquidators seize collateral at a discount, costing you extra.
- Maintain Control: You choose the timing and amount—rather than being forced.
- Preserve Value: Selling collateral at better market prices than liquidators’ fire-sale rates.
How to Self-Liquidate
- Monitor Usage: Set alerts for when borrow usage exceeds your personal cap (e.g., 60%).
- Add Collateral: Deposit more of your existing collateral asset to increase your borrow limit.
- Repay Debt:
- Swap a portion of collateral for the borrowed asset (e.g., ETH → USDC).
- Repay that amount on Compound to lower your usage.
- Use “Repay with Collateral” (if available): Some UIs/third-party tools let you repay directly from collateral in one transaction.
Practical Example
- Position: 1 ETH collateral ($2 000), CF = 75 % → limit $1 500
- Borrowed: $1 000 USDC → 67 % usage
- Alert Trigger: Usage hits 70 %
- Self-Liquidation Action:
- Withdraw 0.1 ETH (~$200) → swap to USDC → repay $200
- New usage = (800 / 2000) = 40 %
Next Steps
You’ve now learned how to manage your borrow limit and self-liquidate proactively. Next, move on to Module 2: Liquidation Risk Management to deepen your understanding of Compound’s liquidation mechanics and risk tools.