After tETH was launched on Aave, many users began to try the strategy of 'collateralizing ETH to borrow stablecoins'. This method indeed improves capital efficiency, but it also comes with a familiar risk - liquidation.
The liquidation risk mainly comes from the collateral ratio. When the price of ETH drops, the value of your collateral assets will shrink, while the borrowed stablecoins remain unchanged, which may trigger the liquidation threshold. Without proper management, this could lead to forced liquidation of positions.
How to reduce risk? First, control leverage. Do not over-borrow and maintain a sufficient collateral ratio buffer. It is generally advised not to push positions to the limit, leaving a 20-30% safety margin. Second, pay timely attention to market fluctuations. As a high-volatility asset, ETH's price drops are often rapid and severe, so users need to regularly check their position status. Third, utilize auxiliary tools. Some third-party liquidation monitoring tools can alert users when the collateral ratio approaches dangerous levels.
Essentially, tETH × Aave provides a 'high-efficiency capital management tool', but it is not 'zero-risk arbitrage'. For users, understanding and managing liquidation risk is a necessary course for participating in fixed income strategies.
