LTV is the core risk indicator of DeFi lending, directly determining liquidation risk and capital safety. This article analyzes its calculation methods, platform differences, and safe usage strategies to help investors avoid liquidation traps.
The basic calculation and significance of LTV
By collateralizing 1000 US dollars worth of ETH to borrow 400 US dollars, the LTV is 40%. Different platforms set different limits based on asset volatility, with stablecoins having a higher LTV, while small tokens have a lower one. The platform also sets additional margin call lines and liquidation lines, and exceeding the LTV triggers risk management mechanisms.
Platform Differences and Key Thresholds
Mainstream coins like BTC and ETH have a high LTV, while small market cap coins have conservative settings. An additional margin line reminds users to replenish their positions, while the liquidation line automatically sells collateral. The continuous accumulation of borrowing interest will also raise the LTV, so it is necessary to maintain a safe range to avoid passive liquidation.
Hidden Risks of High LTV Operations
A drop in collateral prices will amplify the LTV, and exceeding the liquidation line will lead to forced liquidation. Changes in platform rules or extreme market conditions can more easily trigger a chain liquidation, with high LTV accounts experiencing liquidation amounts reaching billions of dollars during the crash in October 2025.
Recent lessons on LTV in the market
The operation of circular borrowing amplifies leverage risk, and re-buying the same cryptocurrency with stablecoin collateral can easily collapse during fluctuations. Emerging protocols are developing smart LTV management strategies, highlighting the importance of collateral rate control.
LTV Guide for Safe Use for Beginners
It is recommended to maintain an LTV of 30% - 50%, choose mainstream assets such as BTC, ETH, and USDC, monitor in real-time, and reserve emergency funds. Avoid circular borrowing, familiarize yourself with the rules of each platform, and reduce leverage to ensure the safety of the principal.
* The information is not intended to be and does not constitute financial advice or any other recommendation of any sort offered or endorsed by Gate.
