Crypto glossary
Loan-to-value ratio (LTV)
The loan-to-value ratio (LTV) compares the size of a loan with the value of the collateral behind it, and sets how much can be borrowed before liquidation.
LTV is the loan amount divided by the current value of the collateral, expressed as a percentage. A $4,000 loan backed by $10,000 of bitcoin has an LTV of 40%. Because the collateral price changes constantly, the LTV of an open crypto loan moves every minute even if the debt stays the same.
Lenders set a maximum LTV for opening a loan and a higher liquidation threshold at which the position is closed. Some platforms express the same idea the other way round as a collateral ratio, such as 150%, and Aave summarises it as a health factor: above 1 the position is safe, below 1 it can be liquidated.
A low LTV leaves room for price drops; borrowing close to the maximum means a modest fall can trigger liquidation and penalties. Borrowers who want to avoid that usually add collateral or repay part of the loan before the ratio gets too close to the limit.
Example
With $10,000 of ETH as collateral and a maximum LTV of 75%, a user could borrow up to $7,500; if ETH fell 20%, a $6,000 loan would see its LTV rise from 60% to 75%.
