The collateralization ratio expresses collateral value relative to outstanding debt, commonly as a percentage. In its basic form, it equals collateral value divided by debt value, multiplied by 100. Both values must use the same pricing unit and valuation basis for the result to be meaningful.
Reading the percentage
If collateral is worth $2,000 and total outstanding debt is $1,000, the ratio is 200%. Using the same values, loan-to-value is 50%, because LTV divides debt by collateral instead. These reciprocal measures move in opposite directions: more collateral raises the collateralization ratio and lowers LTV.
A protocol's minimum required ratio is a rule; an account's actual ratio is a changing measurement. A high percentage is not independently proof that an account is safe. With no debt, this division has no finite result, so interfaces may display a special label.
Valuation and liquidation rules
Prices, accrued interest, deposits, withdrawals, and repayments change the ratio. Protocols may apply asset-specific haircuts or use a separate risk-weighted health factor. Consequently, a raw ratio cannot be compared directly with every liquidation threshold.
The relevant calculation must include the protocol's accepted collateral, oracle prices, current debt, and precise liquidation rules rather than an unrelated market price estimate.