Loan-to-Value (LTV)
What Is Loan-to-Value (LTV) in Crypto?
Loan-to-Value (LTV) is a risk metric used in both traditional finance and crypto lending. In mortgage lending, for example, it compares a loan amount to the appraised value of the property being purchased. In crypto, it compares the amount you borrow to the current market value of the collateral you deposit. To calculate LTV, you simply divide the loan amount by the collateral value, then multiply by 100.
Unlike traditional loans, which rely on credit scores to assess risk, crypto-backed loans are asset-backed. The lender holds your cryptocurrency as security until the loan is repaid. This model lets you access liquidity without selling your assets, which is why it appeals to long-term holders who want to remain exposed to potential upside.
How Does LTV Change Over Time in a Crypto Loan?
Crypto prices move constantly, which means the value of your collateral can rise or fall while your outstanding principal stays fixed. As a result, your LTV at the start of a loan is rarely your LTV for its entire duration. On most platforms, accrued interest and fees also increase the total amount owed over time, which pushes LTV higher even when collateral value is unchanged.
Most lending platforms set two critical thresholds: a margin call level, where you receive a warning to add collateral or repay part of the loan, and a liquidation level, where the platform automatically sells your collateral to recover the outstanding debt.
Starting with a conservative LTV means the collateral value must fall by a larger percentage before liquidation is triggered, giving you more room to absorb market volatility. Conversely, borrowers who begin with tight LTV ratios leave themselves little margin for error during volatile market conditions. A sharp price drop can move a position from safe to liquidated faster than alerts can be acted on.
LTV and Self-Custody
It’s important to note that when you take a crypto-backed loan through a centralized platform, your assets leave your control for the duration of the loan, introducing counterparty risk.
Keeping your assets in self-custody with a Ledger signer means your private keys remain offline and under your control at all times. At the same time, Ledger Wallet™ gives you visibility over your full portfolio so you can make informed decisions about how much of your holdings to leverage and how much to protect.
