Berachain is a high-performance Layer 1 blockchain that utilizes a Proof-of-Liquidity consensus mechanism to align network security with ecosystem liquidity.

Liquidity fragmentation and capital inefficiency create critical bottlenecks for 

 (PoS) systems locking assets away from productive use. To address this fundamental challenge, Berachain has introduced a novel Proof-of-Liquidity 

 that aligns network security with ecosystem liquidity.

This article explores Berachain's innovative architecture, tri-token system and native DeFi applications that could reshape liquidity provision. We'll examine the project's evolution from an 

, and evaluate its potential impact as it approaches mainnet launch.

 is a high-performance Layer 1 blockchain that utilizes a Proof-of-Liquidity consensus mechanism to align network security with ecosystem liquidity, while maintaining 

-identical execution for seamless Ethereum compatibility.

Proof-of-Liquidity (PoL) addresses a critical flaw in traditional PoS systems: the misalignment of incentives. PoS validators earn rewards without engaging with protocols or users while projects retain most tokens for themselves, creating a fragmented ecosystem that limits growth.

PoL establishes a framework whereby network security and liquidity work together. The system requires validators and liquidity providers to collaborate, with validators distributing rewards to liquidity pools and providers earning governance rights through active participation.

On Berachain, PoL operates through a simple cycle:

This innovative mechanism ensures that all Berachain ecosystem participants share in the network's success. Validators seek delegations to boost rewards, protocols offer incentives to attract liquidity and providers earn governance rights through active participation. The result is an ecosystem in which security, liquidity and growth reinforce each other.

Berachain began unexpectedly as Bong Bears, a community-driven NFT project launched in August 2021 by anonymous developers Papa Bear and Smokey the Bera. What started as a playful experiment with a 0.0694 ETH mint price evolved into serious innovation.

The team, joined by Dev Bear, transformed their thriving NFT community into a foundation for tackling DeFi's fundamental challenges, developing a sophisticated L1 platform powered by a PoL consensus. The project's ambition has attracted substantial investment across multiple rounds. In December 2022, Polychain Capital led a $42 million Series A with participation from Hack VC, dao5, Tribe Capital and others.

Following continued development and an undisclosed raise of funds in April 2023, Berachain secured a $100 million Series B in March 2024, backed by Brevan Howard, Framework Ventures, Samsung Next and other prominent investors through a Simple Agreement for Future Tokens (SAFT).

Berachain aims to advance DeFi through critical infrastructure improvements:

By addressing these core challenges, Berachain attempts to establish a new foundation for DeFi whereby network security, capital efficiency and application development work harmoniously to drive sustainable growth.

Berachain operates via the following three key mechanisms.

Unlike EVM-compatible chains that require modifications, Berachain maintains perfect identity with Ethereum's execution layer. Using unmodified clients, such as Geth and Nethermind, Berachain automatically inherits all of Ethereum's capabilities and upgrades.

Berachain's PoL consensus mechanism establishes a sophisticated framework that aligns network security with ecosystem liquidity through a multi-stage process:

 is Berachain's modular consensus framework that integrates CometBFT with any EVM execution environment. Through the Engine API, it enables perfect EVM identity while delivering significant performance improvements.

Built for extensibility, BeaconKit's modular architecture supports custom block builders, rollup layers and data availability solutions. This flexibility serves as a foundation for both L1 and 

 (DApps) to showcase the platform's PoL mechanics while providing essential DeFi infrastructure.

 model. It features dynamic trading fees (0.05–1%) that adjust to asset volatility, while directing 0.1% of all volume to BGT holders.

BEX's innovative gasless transaction system allows users to pay fees in their traded assets rather than in BERA, reducing friction for new users. It enables complex trading strategies through account abstraction (a feature of blockchain that allows users to manage accounts and wallets via 

) and off-chain relayers while maintaining cost efficiency.

 serves as Berachain's native lending protocol, exclusively utilizing HONEY (the Berachain ecosystem’s native stablecoin) as its borrowing currency. This focused approach creates a natural demand for HONEY while maintaining lending market efficiency.

Bend’s risk-adjusted borrowing system lets users collateralize various crypto assets to access HONEY loans. Uniquely, borrowers receive BGT rewards directly through the protocol, creating a powerful incentive for participation while strengthening the platform's governance structure.

 is Berachain's decentralized perpetuals trading platform, in which all positions, collateral and payouts are denominated in HONEY. The platform supports leveraged trading up to 100x, while maintaining a simple, unified experience.

Berps demonstrates Berachain's PoL in action. Liquidity providers deposit HONEY into the 

 vault to serve as trade counterparties, earning both trading fees and BGT emissions. This creates a sustainable balance between trading activity and liquidity depth.

Berachain implements a tri-token architecture to optimize network operations:

 (Berachain Governance Token) is a nontransferable token that powers network governance. Unlike traditional governance tokens, BGT can only be earned through active liquidity provision in approved Reward Vaults, creating a merit-based system in which influence scales with contribution.

 is Berachain's foundational token with two critical functions: powering network transactions as the native gas token and securing the network through validator staking. The total value of staked BERA creates the base layer of security that BGT's liquidity incentives enhance.

, is soft-pegged to the U.S. dollar. The stablecoin maintains its value through a dynamic collateralization process with the following features:

Over the past few months, the Berachain team has playfully hinted that the Berachain project would be launched on mainnet in "Q5" (community shorthand for Q1 2025), following which 

, community members can start engaging through pre-mainnet vaults managed by crypto staking protocols Concrete, Lombard and StakeStone.

, whereby protocols establish liquidity commitments before launch. Shortly after Boyco's completion, Berachain will deploy its mainnet, with vault positions automatically transitioning to native protocols like Kodiak and Dolomite.

 that the project would be launched on mainnet the next day, along with an airdrop of 80 million BERA tokens. 

BERA has a total supply of 500 million tokens, to be distributed as follows:

On Feb 5, 2025, the Berachain Foundation 

 its long-anticipated BERA airdrop, distributing 15.8% of the total supply to dedicated community members, DApp developers, liquidity providers and other key contributors. This initiative recognizes their pivotal role in shaping Berachain’s pre-launch ecosystem and turning the "fake chain" into reality. 

Eligible recipients span various categories, including testnet users, NFT holders and participants in ecosystem initiatives, such as the Request for Brobrosal (RFB) and Boyco. Notably, Binance HODLers will also receive a portion of the allocation, reflecting Berachain’s deepening ties with the broader crypto community. To check eligibility and claim airdrop rewards, users can visit the 

Looking to trade Berachain tokens? Bybit now offers the BERA/USDT Spot trading pair. To get started, you’ll first need to create a Bybit account, then fund it with cryptocurrency and navigate to the 

Berachain introduces a fundamental rethinking of DeFi liquidity through its novel Proof-of-Liquidity consensus. By weaving liquidity incentives into core network operations, the platform creates an ecosystem in which validators, protocols and users naturally collaborate toward sustainable growth.

With this architectural breakthrough, the Berachain network could potentially establish a new standard for Layer 1 platforms whereby sustainable liquidity becomes a catalyst for innovation, rather than a constraint.

Intermediate

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Berachain (BERA): An EVM-Identical L1 Powered by Proof of Liquidity

PIPPIN is a Solana-based unicorn-themed meme coin that was created by a venture capitalist having fun with AI through ChatGPT.

 (SOL) ecosystem has been buzzing with record-shattering meme coins, such as 

 (MEW), among others dominating the space.

 and regular investors alike have been making early moves to buy 

, and some have earned millions of dollars within hours.

Now, a crypto whale who bought WIF early has brought attention to another Solana meme coin known as Pippin by buying $1.52 million worth of PIPPIN tokens.

Let's learn more about Pippin, and why it could be the next big thing on Solana.

PIPPIN is a Solana-based meme coin that was created by a venture capitalist having fun with AI through ChatGPT.

The story is that its creator, Yohei Nakajima, was playing around with AI, trying to create a picture of a unicorn. After generating a few entertaining pictures, he settled on one and asked ChatGPT to name the picture. GPT came up with the name “Pippin,” and even created a personality for the picture.

Thereafter, some developers generated a meme coin known as Pippin on 

, Solana’s popular meme coin generation app. Shortly after, Yohei endorsed the token and even bought a chunk of its supply, and has since been promoting it on X. Yohei is a venture capitalist with a massive following on X, including prominent figures such as Mario Nawfal, the host of the largest show on X, and anonymous crypto trader ImNotTheWolf.

Pippin caught the attention of the crypto community when on-chain whale tracker 

 that a whale who had earned millions of dollars by getting in early on WIF and PNUT had invested $1.52 million to buy PIPPIN tokens.

PIPPIN vs. Other Pump.fun Solana Meme Coins

Since Pump.fun entered onto the crypto scene in January, 2024, the platform has facilitated the launch of meme coin projects, some of which have gone viral within a short period. Let’s compare Pippin with some of the other top meme coins that have launched on Pump.fun.

 (FARTCOIN) was launched in October, 2024, a month before Pippin. The viral meme coin project allows people to submit flatulence jokes and memes in return for rewards in tokens.

Compared to Pippin, Fartcoin is almost 20 times larger in terms of its market capitalization, which stands at $494.6 million as of Feb 6, 2025 — while Pippin's is $32.87 million as of this date. In terms of price, Fartcoin is trading at $0.4959, approximately 1,887% higher than Pippin's current price of $0.03278.

VINE was launched on Jan 23, 2025, by one of the co-founders of Vine, a now-defunct video-sharing app. It immediately went viral, causing 

 to hit one of its highest trading volumes in a single day. According to the co-founder of Vine, Rus Yusupov, the Vine meme coin was created to help its community remember the fun they had when creating the app.

Within days of its launch, VINE's market cap stands at $145.9 million and a price of $0.14, much higher than Pippin's current market cap of $32.87 million and price of $0.03278.

FWOG is a frog-themed Solana-based meme coin with a vibrant community on X. Reconstructed from a collapsed meme coin project, FLOG, FWOG has grown to a market cap of $79.7 million as of Feb 6, 2025. At the time of this writing (Feb 6, 2025), the two meme coins are priced similarly, with FWOG trading at $0.081 and Pippin at $0.03278.

 Perpetual contract with leverage of up to 20x. PIPPIN is listed on Bybit’s Innovation Zone, which features Perpetual contracts that have been handpicked by the Bybit team, giving users the opportunity to trade high-risk, high-return cryptos. Higher trading fees also apply to trading pairs in this zone.

As of Feb 6, 2025, PIPPIN's price was around $0.03278, an 89.6% drop from its all-time high (ATH) of $0.3186 on Jan 11, 2025, and a 494.7% increase from its all-time low (ATL) of $0.005546 on Dec 30, 2024.

 sell-off, price prediction experts have become relatively cautious about PIPPIN's future price. According to CoinCodex’s price prediction platform, 

 a maximum price of $0.042 in 2027 and gradually increase to $0.135 by 2030.

Another price prediction platform, DigitalCoinPrice, forecasts that 

 $0.12 by 2027 and increase to $0.18 by 2030.

These price predictions don’t guarantee the future price of PIPPIN. We highly recommend that you 

 before investing in PIPPIN or any other altcoins.

Pippin (PIPPIN) stands out as an innovative addition to the Solana blockchain, blending the lighthearted appeal of meme coins with the robust performance of a leading crypto network. Backed by a venture capitalist with a strong following on X and buoyed by its use of Solana’s scalability and affordability, the PIPPIN token has the potential to unite fun and functionality.

Beginner

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Pippin (PIPPIN): Solana’s Most Whimsical Meme Coin

MetaMask has introduced the Gas Station feature, allowing users to pay Ethereum transaction fees with Ethereum-based tokens, including stablecoins like USDT and USDC.

The S&P 500 rose 0.39%, driven by Nvidia’s gains and strong earnings, with investors eyeing major reports ahead. Gold nears $2,900 as investors seek safety amid Trump’s tariffs and falling US yields. Coindesk Indices, an index measuring broader cryptocurrency market performance was down by 0.56%, with Bitcoin dropping by 1.38% and Ether rising by 5.53%, in the past 24 hours. Trade these markets and more with up to 500x leverage on Bybit MT5 using this 

Today’s top performer is XION, which surged nearly 15.2% following the launch of XION Mainnet, simplifying Web3 access with the Promethean Saga.

XION (XION), launched in December 2024,  is a Layer 1 blockchain that removes technical barriers, making blockchain apps as easy to use as websites. 

, offering a walletless Web3 experience with zero fees. The Promethean Saga aims to make Web3 accessible to all, reaching 60,000 daily users during its Early Access. XION’s "Gateway to Abstraction" simplifies engagement with Web3, and the community-driven movement continues with competitions and upcoming features.

Check Out the Latest Prices, Charts, and Data of 

, allowing users to pay Ethereum transaction fees with Ethereum-based tokens, including stablecoins like USDT and USDC. This aims to enhance accessibility by eliminating the need to hold ETH for gas fees. Initially available for Ethereum transactions, MetaMask plans to expand support for additional tokens. The update addresses gas fee challenges, especially for DeFi users relying on stablecoins. The Gas Station is integrated with MetaMask Swaps, sourcing competitive fee pricing from multiple DEXs and liquidity providers.

Yesterday, BTC Spot ETFs had a total inflow of $22M, entirely from non-GBTC funds.

 an upcoming TGE and airdrop with a "99% loaded" post, suggesting it's just around the corner. If they allocate generously to the community, this could be a highly rewarding event.

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MetaMask Introduces Gas Station Feature for Paying Fees with Ethereum-Based Tokens

LumiWave is a content ecosystem centered on web3 gaming. It aims to provide a system for converting global intellectual property into blockchain technology.

 has been one of the most lucrative fields in the blockchain industry, so it's no surprise to hear that more and more companies want to get involved. LumiWave hopes to ease the transition by providing a convenient and reliable way for companies to turn their intellectual property (IP) into web3 games. Can this blockchain ecosystem provide critical infrastructure for web3 gamers? Keep reading to learn more details about LumiWave's features and future plans.

 is a content ecosystem centered on web3 gaming. It aims to provide a system for converting global intellectual property into 

. Gamers can access blockchain games and earn rewards, while developers can get help managing their digital assets.

LumiWave was initially founded by Sai Vardhan and Charan Teja under the name of ONBUFF. Vardhan has a background in economics, while Teja studied sociology and business administration. The two founders began working together in 2020 to help companies with digital marketing. They realized there was a real need for services that could help established businesses turn their IP into web3 content.

The project was initially launched under the name of ONBUFF, and ran on the Ethereum chain. However, in 2023, the company began plans to 

 instead. This decision was meant to improve scalability and to lower costs for using the company's services. As part of the migration, the project chose to rebrand as LumiWave and convert all of its existing ONIT tokens into LWA tokens. 

LumiWave was born out of the founders’ experiences working in digital marketing. They noticed that many businesses wanted to get involved in the web3 space, but were struggling to do so. LumiWave hopes to be a helpful transition between the world of Web 2.0 and web3 design. 

It plans to create a quick and convenient way for people to add blockchain technology to existing IP. While LumiWave’s primary goal is web3 marketing, the company has found that the most effective way to achieve this objective is to focus on gaming and 

. The platform hopes that by offering these in-demand services, it can make it easier for companies to reach out to people in crypto spaces.

LumiWave's architecture is designed around a semi-modular blockchain concept. The entire ecosystem is based on the Sui platform, and the 

 (DPoS) system keeps track of new transactions and records made on LumiWave. Its validation system requires users to stake tokens instead of solve computer algorithms, and is thus both more eco-friendly and scalable than 

LumiWave then conceptualizes the blockchain 

. While all projects on LumiWave follow the same inherent set of guidelines, each company is its own "planet." This allows every new IP provider to design its own approach to things like web3 gaming design and NFT values. However, users can still easily travel between planets, so they can move assets like NFTs or ecosystem tokens between different IP projects they interact with.

The LumiWave platform has a comprehensive suite of products designed to bridge the gap between users and IP companies. Following are the key benefits you can enjoy via the LumiWave website.

The INNO platform is the main ecosystem that runs all of LumiWave's IP features. It includes multiple components, which users can enjoy and companies can use to market their IP.

INNO ID is the user identification code that each person on LumiWave has. INNO IDs are the blockchain version of the accounts used on traditional Web 2.0 sites. They include an individual identifier that’s linked to a person's account activity and assets. 

INNO SWAP is an exchange in which players can manage their assets. Users can convert LumiWave tokens to planet tokens that can be used for individual IPs. The swap also allows users to exchange their in-game points for cryptos that are tradable on other exchanges.

Instead of having a built-in wallet that LumiWave manages, the INNO Platform lets you link your user ID to external wallets. It currently supports 

, the Sui Wallet and the Polygon mainnet wallet. This wallet structure provides players with extra flexibility and customization.

To support all of the various IP-related NFTs in its ecosystem, the INNO platform includes a full NFT marketplace. Users can buy and sell NFTs and sort through a vast collection of NFTs based on their rarity, use and other parameters. 

The INNO Games ecosystem creates an exciting way for users to interact with their favorite IP. It includes a variety of game styles, ranging from puzzle games to MMORPGs. The gaming system uses both software and technology to run its games, with the main goal to entertain users. Instead of focusing on investing, each game focuses on creating engaging mechanics that introduce players to the company's IP.

In addition to NFTs gained through interacting with IPs, LumiWave also has its own standalone NFT collection, 

, which consists of a set of cat-themed NFTs with various accessories and appearances. People who hold one of these NFTs have access to additional perks. Not only do they get priority for various transactions, but NFT holders also have membership in exclusive LumiWave communities. 

 has included details such as launching gaming infrastructure and designing wallets for its users to work with. Now that the basic system is all set up, LumiWave has been prioritizing its migration from Ethereum to Sui. The ecosystem is still in the middle of merging all of its assets and rebranding its marketing to reflect the changes. 

LumiWave hasn't released its 2025 road map yet. Presumably, the system's developers are still focused on finishing up the final stages of the 2024 road map, such as putting the finishing touches on its DeFi system. This year (2025) is also likely to include more partnerships for LumiWave. As the system onboards new IP, users can expect to see more games, more NFT launches and other exciting releases.

Initially called ONIT, LWA tokens are the native utility tokens of LumiWave. While individual IPs can have their own tokens, the LumiWave token is used as a universal currency to buy items in the marketplace and regulate token exchange rates. LWA has a total supply of just over 770 million tokens, distributed according to the following plan:

The LumiWave token debuted with a price of $0.19 back in 2020, and quickly shot up to an all-time high (ATH) of $0.7781 by Sep 8, 2020. It then declined to a low of $0.02 by the start of 2021, before rallying again to approximately $0.22. LWA experienced its next crash in mid-June 2021, with prices as low as $0.03. It then recovered once again to a high of $0.39 in December 2021. Since then, its price dropped below $0.10 and hasn’t recovered since. The coin reached an ATL of $0.017 on Feb 3, 2025. Since that time, its price has mostly fluctuated between $0.01 and $0.03.

CoinMarketCap's community sentiment tracker reports an 

 on this token. The coin has lost some momentum following its rebranding, and is struggling to regain its former audience. However, token pricing analysts predict some slow yet steady growth for this token. Though LWA might not perform as well as other coins on the market, CoinCheckup says it may end the year at a 

The main benefit of investing in the LWA token is that it has a lot of utility. Since LumiWave users need LWA for marketplace transactions, the tokens retain some of their value, regardless of how the market fluctuates. Furthermore, this token has had some occasional price jumps that provide potential for investors to profit. 

However, even though the LWA token might have some promise, it's important for investors to remain cautious. The LumiWave project has been somewhat vague as to the precise benefits it’s providing, and it hasn't really explained how it plans to stand out in a web3 space saturated with gaming content. To achieve long-term success, this project needs to partner with a lot of reputable IP providers and provide more clarity regarding its road map. Until then, investors need to 

 and avoid putting too much of their funds into LWA.

LumiWave's mission to help companies better monetize their IP is exciting. As more projects move into the web3 space, the infrastructure to ease this transition will be highly useful. However, LumiWave has a lot of competitors in the web3 gaming and IP market, and it will need to work hard if it wants to distinguish itself. 

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LumiWave (LWA): Illuminating the Path to Web3 Gaming Innovation

Trading

Crypto liquidation describes the forced closing of a trader's trading position due to the partial or total loss of their initial margin. Learn how it happens & strategies to avoid it.

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Cryptocurrencies are known for their volatility. This makes them prime targets for liquidation. Liquidation, the bogeyman of crypto trading, occurs when an investor cannot meet the margin requirement for their leveraged position. Traders increase the funds they can trade with by borrowing from a third party — in this case, an exchange. 

While leveraging or borrowing funds to increase trade positions can multiply potential gains, it’s a highly risky move. You could lose your initial margin or capital if the market moves against your leveraged position.

This article will delve into the meaning of crypto liquidation, how you can avoid it and what to do when it happens. We’ll also look at why volatile trading environments are more prone to liquidation. Let’s get started!

Liquidation refers to the process of selling off crypto assets for cash to minimize losses, especially in the event of a market crash.

However, in the crypto space, the term liquidation is mainly used to describe the forced closing of a trader’s position due to the partial or total loss of the trader’s initial margin. This happens when they cannot meet the margin requirements for their leveraged position — i.e., they have insufficient funds to keep the trade open. Margin requirements are often underfunded when there’s a sudden drop in the underlying asset’s price.

When this happens, the exchange will automatically close out the position, resulting in a loss of funds for the investor. The severity of this loss will depend on the initial margin in place and how much the price drops. In some cases, it can lead to a total investment loss.

Liquidations can be categorized into partial and total liquidation. For example: 

 Liquidation that closes a position partially early on to reduce the position and leverage used by a trader.

 Closing a position nearly all of the initial margin of a trader has been used.

Liquidation can happen in both futures and spot trading. Though traders should be aware that when buying a contract, the price is derived from the asset instead of the asset itself. That translates to the fluctuation of the profit and loss when it’s converted back to the current asset’s price. 

Crypto margin trading is the process of borrowing money from crypto exchange to trade a higher volume of assets. This can provide the trader with increased buying power (or “leverage”) and the potential for greater profits. In other words, leverage refers to borrowing funds to enter a larger position than the own funds permit. However, it also carries more risk, as leveraged positions can be liquidated quickly if the market moves against you.

, the exchange will require you to put up a specified amount of crypto or fiat currency (also known as the “initial margin”) as collateral. These funds help to insure the lender against loss if the trade goes south. While maintenance margin is referred to as the minimum margin required to keep a position open.

Leverage is calculated using the amount of funds you can borrow from an exchange relative to your initial margin. Let’s take a simple example. If you start with an initial margin of $1,000 and 10x leverage, that means you’ve borrowed $9,000 to increase your trading position from $1,000 to $10,000.

The degree of leverage also determines the potential of a trade to make or lose money. Using the example of 10x leverage above, if your asset’s price rises by 5%, you’ve gained $500 (or 5% of $10,000) from your trading position. That is, with just a 5% price increase, you’ve netted a profit of 50% of your initial $1,000 margin. Sounds lucrative, right? 

But cryptocurrencies are notoriously volatile, and the price of your asset could tumble at a moment’s notice. So continuing with the example above, with a 5% drop in your asset’s price, you’ve lost $500, or 50% of your initial margin, which translates to a 50% loss. 

The objective of trading is to make a profit. The formula for calculating how much you stand to make or lose when using leverage is simple:

Initial margin × (% price movement × leverage) = profit or loss

One important note about crypto margin trading: When positions are liquidated, they’re always closed at the current market price. Your losses are magnified by the size of the leveraged position. In other words, if the trader loses $1,000 out of the $10,000 open position, the trader lost his entire initial margin. So it’s critical to be aware of the risks involved before borrowing any money to trade cryptocurrencies. 

Liquidation happens when an exchange or brokerage closes out a trader’s position because it can no longer meet margin requirements. Margin is the percentage of the total trade value that must be deposited with the broker to open and maintain a position.

When a trader’s margin account falls below a level previously agreed upon with the exchange, positions will automatically start liquidating. When your leveraged position reaches the liquidation threshold, you’ll face a “margin call,” which means you need to put up more margin. Liquidation tends to happen more often on futures contracts, where traders use higher amounts of leverage.

At that point, there are two options: Either you can add funds to your margin to bring your leverage back up above the leverage requirement, or the broker will automatically liquidate your position.

Continuing with our example of a $1,000 initial margin, let’s say you entered a trade with 10x leverage, which means your leveraged position is now $10,000 — that is, $1,000 of your own money and $9,000 which you’ve borrowed from the exchange.

Let’s say your BTC slipped by 10%. Your position now is worth $9,000. Should the dip continue, and the position’s losses increase, it would be applied to the borrowed funds. To avoid losses to the borrowed capital, the exchange would then liquidate your position to protect the money lent to you. Your position is closed — and with it, your initial capital of $1,000 is lost.

That’s not all. Exchanges will typically charge you a liquidation fee. The idea is to encourage traders to close their positions before they’re liquidated automatically.

A critical point to know is that leverage cuts both ways: Higher leverage will make you more money when the trade goes well, but only require a slight negative price movement to trigger a liquidation event. For instance, a trade position with 50x leverage will only take a price slide of 2% to initiate a liquidation.

However, there are other instances where exchanges like 

 that is fixed at 0.5% of the bankruptcy price instead of the entry price. That also means, a trader’s position will not be partially liquidated but will only be liquidated if the initial margin has 0.5% left. Still, if you must use leverage, you may want to limit yourself to an amount you can manage. 

 is the point at which your leveraged positions are automatically closed out. A few factors that affect this threshold include leverage used, maintenance margin rate, cryptocurrency price, and the remaining account balance. Exchanges will calculate the liquidation price for you, which may be an average taken from several major exchanges.

When the price of your cryptocurrency crosses the liquidation price threshold, it triggers the liquidation process. Cryptocurrency prices are constantly changing, so it’s important to stay on top of the latest news and make sure your positions are still making a profit. Otherwise, you may find yourself automatically liquidated at a loss.

A trader may need to liquidate their Bitcoin to cover a short position, or to meet other financial obligations. When this happens, the trader will usually sell their Bitcoin at the current market price, regardless of whether it’s above or below the original purchase price. However, in some cases, a trader may be forced to sell their Bitcoin at a price below the market rate. This may end up being the liquidation price, and it’s usually determined by the exchange on which the Bitcoin is being sold.

In early January, when Bitcoin fell below 43k, over 

 were liquidated, resulting in large losses for long crypto traders. This happened because of a partial or total loss of initial margin for traders.

It’s important to note that the liquidation price can change at any time, depending on the current market conditions. So if you’re thinking about selling your Bitcoin, it’s always a good idea to check the latest liquidation price before making a final decision. By doing this, you can make sure that you’re getting the best possible deal.

Forced Liquidation vs. Liquidation: Differences

The term “liquidation” simply means converting assets to cash. Forced liquidation in crypto trading refers to an involuntary conversion of crypto assets into cash or cash equivalents (such as stablecoins). Forced liquidation occurs when a trader fails to meet the margin requirement set for a leveraged position. When this condition is met, the exchange sells the trader’s assets automatically to cover their positions.

The main difference between liquidation and forced liquidation is that in a forced liquidation, the

trader’s positions are closed automatically by a third party (like the exchange), while in a

regular or voluntary liquidation, the trader has to close them. A trader can decide to cash out a cryptocurrency trade for various reasons.

Another key difference is that in a forced liquidation, all positions are closed at the same time, while in voluntary liquidation, they can be closed gradually.

A forced liquidation protects traders from incurring any additional losses. However, it can also be a disadvantage, because all positions are closed at the same time, which can lead to missed opportunities. A regular liquidation, on the other hand, gives traders more control over their positions as they can close them gradually. This also means, however, that they’re more exposed to losses if the market moves against them.

While there’s always a chance you’ll lose money on a trade, employing smart trading strategies such as using lower leverage and monitoring margins can help a trader avoid liquidation. Crypto exchanges also offer insurance funds as a way of minimizing trading losses.

 is a reserve pool of funds that acts as a protective mechanism against excessive loss. It is used to cover the contract loss. So, when a trader’s position has been liquidated at a price better than the bankruptcy price (that is, the price at which a trader’s losses equals their initial margin), any gains go to the insurance fund.

On the other hand, if the liquidation price is less than the bankruptcy price, the position’s loss will have exceeded the trader’s initial margin. The insurance fund will then cover this deficit (or negative equity).

For example, John and Alice opened different BTC long positions with a bankruptcy price of $40,000 and $39,500 respectively. They both have a liquidation price of $40,200, so when they get liquidated, John is liquidated at $40,000 thus taking away from his insurance fund while Alice is liquidated at $39,500 with the add-on of the insurance funds based on the last traded price of $39,800.

Insurance funds are safety nets that protect bankrupt traders from unfavorable losses. However, using liquidation exit strategies can prevent this risk in the first place. The purpose of an exit plan is to minimize the amount of money lost. 

Examples of liquidation exit strategies include using limit, trailing stop-loss or stop-loss orders to close out positions before liquidation occurs. 

 means the trader chooses to close the position with a market order once the last traded price reaches a pre-determined price. Stop-loss orders act as a safety net to limit the potential loss that crosses the entry price. 

This refers to setting a stop-loss order following the last traded price at a pre-set price’s distance and direction. So when the last traded price reaches the peak and only moves in one direction, it’ll then trigger the trailing stop. Thus limiting the losses and increasing unrealized gains when the market price moves in your favor.

Reducing leverage, even slowly, is also a way to combat liquidation. However, the first step is keeping track of liquidation prices, and of how close your positions are to not being able to cover margin. 

Before jumping into crypto trading, be sure you understand what liquidation is and how to avoid it. Crypto liquidation occurs when an investor cannot meet the margin requirement for their leveraged position. Traders increase the funds they can trade with by borrowing from an exchange.

While leveraging or borrowing funds to increase trade positions can multiply potential gains, it’s a highly risky move, and can equally amplify your losses. Nevertheless, you can avoid liquidation by keeping an eye on your margin, leveraging reasonably, and using trading tools such as stop-loss and limit orders.

What Is Crypto Liquidation & How Do I Avoid It?

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