Loan-to-Value Limits

Loan-to-Value Limits are the maximum percentages of an asset's value that a protocol will allow a user to borrow against. These limits are set based on the volatility and liquidity of the collateral asset, with more stable assets allowing for higher LTVs.

For example, a highly volatile token might have an LTV of 50 percent, while a stablecoin might allow for 80 percent. These limits are designed to protect the protocol from sudden price drops that could make the loan unrecoverable.

Exceeding these limits through additional borrowing increases the risk of liquidation significantly. Understanding the specific LTV limits for different assets is a core part of strategic borrowing and risk management in DeFi.

It is a key parameter that balances capital efficiency with protocol safety.