// GLOSSARY -- DEFI

What is Loan-to-Value (LTV)?

1 min read Updated

Loan-to-Value (LTV) ratio is the proportion of borrowed amount to collateral value in a DeFi lending position — determining borrowing capacity and liquidation risk.

WHY IT MATTERS

LTV is the key risk metric in DeFi lending. At 50% LTV, you've borrowed half your collateral's value — relatively safe. At 80% LTV, you're near most protocols' liquidation threshold — a small price drop triggers liquidation.

Each lending protocol sets maximum LTV per asset. Conservative protocols cap at 75%; aggressive ones allow 85%+. The gap between your current LTV and the liquidation threshold is your safety margin.

Active LTV management is crucial: monitor ratios, set alerts, and maintain buffer. DeFi liquidations are instant and include penalties (typically 5-15%), making prevention far cheaper than cure.

FREQUENTLY ASKED QUESTIONS

What's a safe LTV?
Generally 50-60% provides a comfortable buffer. Above 70% is risky in volatile markets. Stablecoin-collateralized loans can safely run higher LTV due to lower volatility.
How is LTV calculated?
LTV = (Borrowed Value / Collateral Value) × 100. If you deposit $1000 ETH and borrow $600 USDC, your LTV is 60%.
What happens at max LTV?
Liquidation. A liquidator repays part of your debt and claims your collateral at a discount. You lose the liquidation penalty plus the sold collateral.

FURTHER READING

Enforce policies on every tool call

Intercept is the open-source MCP proxy that enforces YAML policies on AI agent tool calls. No code changes needed.

npx -y @policylayer/intercept
github.com/policylayer/intercept →
// GET IN TOUCH

Have a question or want to learn more? Send us a message.

Message sent.

We'll get back to you soon.