Loan-to-Value Ratios
Loan-to-value ratios measure the amount of debt taken against the value of the collateral provided to secure that debt. In crypto lending and derivatives, this ratio is a key determinant of both borrowing capacity and liquidation risk.
A higher ratio indicates higher leverage and a narrower buffer before the position hits a liquidation threshold. Protocols set maximum LTV limits to ensure that the collateral remains sufficient to cover the loan even during significant market downturns.
Traders must carefully manage their LTV to avoid being forced into liquidation during periods of high volatility. It is a fundamental metric for evaluating the sustainability of a leveraged position and the overall health of a portfolio.
Glossary
Decentralized Finance
Asset ⎊ Decentralized Finance represents a paradigm shift in financial asset management, moving from centralized intermediaries to peer-to-peer networks facilitated by blockchain technology.
Borrowing Capacity
Capacity ⎊ Within cryptocurrency, options trading, and financial derivatives, borrowing capacity represents the maximum value of assets an entity can pledge as collateral to secure a loan or margin position.