LTV – why is it important for crypto lending?

Have you heard about LTV? If you're taking a crypto loan, this number will haunt you constantly.

What does LTV basically mean?

LTV (Loan-to-Value) is simply the ratio of how much you borrowed to the value of your collateral. The formula is straightforward: LTV = loan amount / value of collateral.

In a regular bank, you are assessed based on your credit rating. But in crypto? Forget about scores – everything here depends on guarantees. Your crypto collateral is your credit rating.

How does it work in practice?

Scenario 1: You borrow against Bitcoin

Borrowed $5,000 against $10,000 BTC → your LTV = 50%. Sounds fine, but there's a catch.

Cryptocurrency has fallen by 40%? Your collateral is now worth $6,000, and you still owe $5,000. LTV jumped to 83%. The platform will require additional collateral, otherwise – liquidation.

Scenario 2: The loan is already active

Now you just follow: LTV = remaining debt / current collateral value. Every day this ratio changes along with the price of crypto.

Why do you need to know this?

Low LTV = more security, but a smaller loan amount. The lender takes less risk, you get a mega rate, but also less money. It’s a trade-off: a higher LTV will allow you to take more, but the risk of leverage increases.

Gold Standard: look at LTV before taking on a crypto loan. This is a finger on the pulse of your security.