GlossaryIntermediate
Loan-to-Value (LTV)
The ratio of a borrowed amount to the value of the collateral backing it, a core measure of a loan's risk in both DeFi and traditional lending.
Loan-to-Value (LTV) divides the amount borrowed by the current value of the collateral backing the loan, expressed as a percentage — a core risk measure in both DeFi lending protocols and traditional lending alike.
In DeFi specifically, LTV typically rises automatically as the collateral's price falls (since the loan amount is fixed but the collateral's value isn't), and crossing a protocol's maximum allowed LTV is generally what triggers liquidation — closely related to, but distinct from, a position's Health Factor. See Kaavon's Loan-to-Value calculator for the full calculation.
Examples
- A falling collateral price automatically raises a DeFi loan's LTV, even though the borrowed amount itself hasn't changed.
- LTV and Health Factor are closely related DeFi lending risk measures, often expressing the same underlying collateral-to-debt relationship in different units.