Minimum Collateralization Ratio (MCR)

The minimum collateralization ratio (MCR) is the lowest level, expressed as a percentage, to which the value of a borrower's collateral may fall relative to their debt before the position can be liquidated. It is used by crypto-backed stablecoins and DeFi lending systems built on collateralized debt positions. The ratio is collateral value divided by debt: a vault holding 1,500 dollars of ether against 1,000 dollars of borrowed stablecoins has a ratio of 150%. If a protocol's MCR is 130% and the ether falls until the ratio drops below that level, the vault becomes eligible for forced liquidation. Higher MCRs make a system safer but tie up more capital; lower ones are more efficient but leave less buffer in a crash. Each protocol sets its own figures, which in the Maker Protocol differ by collateral type. Also see collateral factor.