A collateral ratio is the ratio between the Dollar value of the collateral in your position and its debt in LUSD. The collateral ratio of your position (called "Trove") will fluctuate over time as the price of ETH changes.
Liquity Protocol allows users to borrow at a minimum collateral ratio of 110%, which corresponds to a loan-to-value ratio of 90.91%. This makes borrowing highly capital efficient and allows for up to 11x leverage on investments. When compared to other DeFi borrowing protocols, Liquity’s minimum collateral ratio requirement of 110% is unprecedented.
Borrowers need to ensure that their collateral ratio does not fall below 110%, otherwise their Troves become vulnerable to liquidation. The protocol’s efficient, instantaneous liquidation mechanism allows for such a low collateralization ratio, while maintaining a high level of robustness.
