Maximum LTV

The maximum LTV is the highest loan-to-value ratio allowed by a protocol for a specific collateral asset. This limit is a critical risk parameter that prevents users from taking on excessive leverage.

It is set based on the volatility and liquidity of the asset; more volatile assets have lower maximum LTVs. If a borrower attempts to borrow more than this limit, the transaction is rejected by the smart contract.

This parameter is often adjusted by governance to respond to changing market conditions. It is the primary tool for controlling the overall leverage level within the protocol and protecting the system from large-scale liquidations.