Loan-to-Value Ratio (LTV)

LTV is the number that tells a lender how much skin you have in the game. Borrow $60,000 against $100,000 in ETH? That's a 60% LTV. The higher that number climbs, the less cushion exists between the lender's money and a loss.

Borrowers care because LTV determines how much they can access. Lenders care because it determines how exposed they are if prices drop. In crypto, where collateral can lose 20% of its value in a single afternoon, that cushion isn't a formality — it's the whole ballgame.

How It Works

The math is simple: divide the loan amount by the collateral value, multiply by 100. $40,000 borrowed against $100,000 in BTC = 40% LTV. Most crypto lending platforms set a maximum LTV — often 50% to 75% depending on the asset — and won't let you borrow above it.

That ceiling isn't arbitrary. It's the buffer between your loan and a liquidation event. Platforms set a separate liquidation threshold — say, 83% LTV — and if your collateral drops enough to push you past it, the protocol automatically sells your collateral to repay the loan. No phone call, no grace period.

Here's the key dynamic: your LTV isn't fixed after you borrow. If ETH drops 30%, your collateral is worth less, but your loan balance stays the same. That pushes your LTV up — automatically, in real time — even though you haven't touched anything.

Why It Matters

A low LTV gives you breathing room. If you borrow at 40% LTV on ETH, prices would need to fall roughly 50% before you hit a typical liquidation threshold. Borrow at 70% LTV and a 15% price drop can put you in danger. The rate might look the same, but the risk profile is completely different.

What to Watch

The most common mistake is borrowing at or near the maximum LTV because the platform allows it. Just because you can borrow 75% of your collateral's value doesn't mean you should. Crypto markets move fast. A position that looks safe on Monday can hit liquidation by Wednesday.

Also watch for platforms that use different assets as collateral with different LTV ceilings. A stablecoin-backed loan might allow 90% LTV because the collateral is stable. A BTC-backed loan at 90% LTV is a different animal entirely — one bad week and you're liquidated.