Overview
Loan-to-value (LTV) is the ratio of a loan amount to the value of its collateral, determining borrowing capacity. A lower LTV means more collateral backing per unit borrowed. Protocols set maximum LTVs and liquidation thresholds based on asset risk.
How It Works
If an asset has a maximum LTV of 75%, a borrower can borrow up to 75% of its value. When the loan exceeds the threshold, the position becomes liquidatable. Stable assets typically allow higher LTVs than volatile ones.
Why It Matters
LTV is the core parameter balancing capital efficiency and lender safety in DeFi lending. It directly determines how much users can borrow and the risk of liquidation. Understanding LTV is essential for borrowers.
Related Concepts
LTV is central to Lending and Collateral, and it sets the boundary for Liquidation. It also applies to Stablecoin collateral ratios.