Over-Collateralization Ratio Calculator
Measures collateral posted vs. borrowing amount.
Over-Collateralization Ratio
Understanding Over-Collateralization Ratio (OCR)
The Over-Collateralization Ratio (OCR) is a vital risk management metric used in decentralized finance (DeFi) and traditional lending. It represents the ratio of the collateral's value to the amount of the borrowed loan. By requiring loans to be over-collateralized, lenders protect themselves against the volatility of the collateral's price.
The simple mathematical formula is:OCR = (Value of Collateral / Borrowed Amount) × 100
Healthy Collateralization: Typically, a ratio of 150% or more is considered safe. This means there is $1.50 of collateral for every $1.00 borrowed, providing a 50% buffer against price drops.
Liquidation Risk: If the collateral's value falls drastically, pushing the ratio below a certain threshold (e.g., 110% or 120%), the protocol or lender may automatically liquidate (sell) the collateral to repay the debt. This mechanism is crucial to maintain system solvency.
The interactive bar chart visualizes your borrowed debt against the value of your collateral, while the dynamic threshold line shows the standard 150% safety margin. If the collateral bar dips below the safety threshold, its color will shift to warn you of increasing liquidation risks.
Monitoring your OCR is particularly important when applying leverage. For related tools, see our Leverage Impact on Returns Calculator to understand potential gains and losses, or evaluate potential worst-case scenarios with the Value at Risk (VaR) Estimator.