> For the complete documentation index, see [llms.txt](https://nx-finance.gitbook.io/nx-academy/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://nx-finance.gitbook.io/nx-academy/nx-101/module-2.3-liquidation-in-nx.md).

# Module 2.3｜Liquidation In NX

## NX Finance Liquidation Mechanism (**TL;DR)**

<figure><img src="https://k6b3q4cn2x.larksuite.com/space/api/box/stream/download/asynccode/?code=Mjc5MDNkOTVkYWY1MTU2ODY5YjBhNDI1YTFhNTkzNDNfR1lqVWFnWDFqRTFaWWV2endvWVg5c2ZocUpKTWRUb2VfVG9rZW46Q3pxTGJOZzlvb2ZJTUF4VjVnWXVnY0RPczdnXzE3MzUwMzY2ODE6MTczNTA0MDI4MV9WNA" alt=""><figcaption></figcaption></figure>

{% hint style="info" %}
You can directly check the Liquidation Price if you're not a big fan of Math
{% endhint %}

## Liquidation Formula

$$\text{Loan Value > (Collateral Value + JLP Value) × Safe Collateral Line (95%) || Collateral Value = 0}$$

**Breakdown**

* Loan Value = Number of Borrowed Tokens × Loan Token Price
* Collateral Value = Number of Collateral Tokens × Collateral Token Price
* JLP Value = Number of JLP Notes × JLP Price<br>

## Example of Liquidation with NX Finance

Scenario:

* You deposit 250 JLP as collateral (worth $1,000 at $4 per JLP)
* You borrow 4,000 USDC using 5x leverage
* Current borrow rate: 34.3% (due to 89.3% utilization rate)
* Safe Collateral Line: 95%

<table data-header-hidden><thead><tr><th width="117"></th><th></th><th></th><th></th><th></th><th></th><th></th></tr></thead><tbody><tr><td>Leverage Ratio</td><td>JLP Price ($)</td><td>Collateral (JLP)</td><td>Borrowed (USDC)</td><td>Total Position (USDC)</td><td>Safe Threshold (USDC)</td><td>Price Drop to Liquidation (%)</td></tr><tr><td>2x</td><td>4.00</td><td>250</td><td>1000</td><td>2000</td><td>950</td><td>52.50</td></tr><tr><td>3x</td><td>4.00</td><td>250</td><td>2000</td><td>3000</td><td>950</td><td>36.67</td></tr><tr><td>4x</td><td>4.00</td><td>250</td><td>3000</td><td>4000</td><td>950</td><td>28.75</td></tr><tr><td>5x</td><td>4.00</td><td>250</td><td>4000</td><td>5000</td><td>950</td><td>24.00</td></tr><tr><td>6x</td><td>4.00</td><td>250</td><td>5000</td><td>6000</td><td>950</td><td>20.83</td></tr><tr><td>7x</td><td>4.00</td><td>250</td><td>6000</td><td>7000</td><td>950</td><td>18.57</td></tr></tbody></table>

### Why Higher Leverage Ratios Lead to Higher Liquidation Risk

With NX Finance's 95% liquidation threshold, the risk of liquidation **increases dramatically with higher leverage**. Let's compare different leverage ratios:

<figure><img src="https://k6b3q4cn2x.larksuite.com/space/api/box/stream/download/asynccode/?code=NjEzN2Q5ODkwNDRlMjBmZTU1MTU1ZTkwMTY3ODliMTdfcWNNc0UydVI0aldsbnl3RWxsd1ZQSnpYazF6NGp0VVZfVG9rZW46V1hrSWJaQnZRb0pCMkF4OWlSRHV6NWp0c3ZmXzE3MzUwMzY2ODE6MTczNTA0MDI4MV9WNA" alt=""><figcaption></figcaption></figure>

With higher leverage ratios:

* You borrow more relative to your collateral.
* Even **small price drops** in your collateral or JLP can push your loan value above the safe collateral threshold

## Practical Tips for Managing Liquidation Risk on NX Finance

Given the high liquidation threshold, consider these tips:

1. Use very **conservative** leverage ratios (e.g., 1.5x or 2x) until you're extremely comfortable with the platform's mechanics.
2. Use very **conservative** leverage ratios (e.g., 1.5x or 2x) until you're extremely comfortable with the platform's mechanics.
3. Consider setting up **alerts for price movements** of the assets you're using as collateral.
4. Always have **additional collateral ready** to deposit quickly if needed to avoid liquidation.
5. Understand that the 95% threshold leaves very little room for error, so be prepared to act fast in volatile markets.

## Key Takeaway

1. NX Finance's 95% liquidation threshold means positions can be liquidated with very small price movements.
2. Higher leverage ratios dramatically increase the risk of liquidation, even with minor market fluctuations.
3. Constant monitoring and quick action are essential when using leverage on this platform.
4. Consider using lower leverage ratios to provide more buffer against price volatility.