Loan-to-Value Ratio (LTV)
The ratio of a loan’s value to the value of its collateral in DeFi lending.
What is Loan-to-Value Ratio (LTV)?
LTV measures the loan amount relative to collateral value, expressed as a percentage. For example, an LTV of 66.7% allows borrowing $1,000 against $1,500 in ETH. Protocols set LTV caps (typically 50–80%) to ensure overcollateralization. Aave’s v3 markets in 2025 offer LTVs up to 75% for stable assets like USDC, while volatile assets like BTC have lower caps.
LTV determines borrowing capacity and liquidation risk. If collateral value drops, pushing LTV above the cap (e.g., 80%), liquidation is triggered. In 2024, protocols adjusted LTV dynamically for volatile assets, reducing liquidations by 15% during market swings.
Related Terms
Liquid Staking
A staking mechanism on Ethereum where users receive derivative tokens representing their staked ETH, allowing them to use these tokens in DeFi activities while earning staking rewards.
Borrow Rate (Lending)
The interest rate borrowers pay to access funds from a lending pool.
Geth
An open-source Ethereum client software, written in Go, for running nodes, executing transactions, and interacting with the Ethereum blockchain.
Compound
A decentralized finance (DeFi) protocol that enables lending and borrowing of digital assets through algorithmically managed interest rate markets.
DAO
A blockchain-based organization governed by smart contracts and member voting, eliminating centralized control.
Constant Product Market Maker (CPMM)
An automated pricing model in DeFi that maintains a constant product of asset reserves in a liquidity pool to determine prices.