Loan-to-value, or LTV, is the share of your loan compared with your collateral’s market value, expressed as a percentage, and the higher it climbs, the closer you sit to a forced liquidation. If you’re borrowing against Bitcoin or Ethereum instead of selling, this one number tells you how much breathing room you actually have. Compare your current LTV with your lender’s liquidation threshold, then test what falling collateral prices and growing debt would do to that gap.
TL;DR:
- In an illustrative example, a $4,000 loan against $10,000 collateral starts at 40% LTV. A 25% collateral-price drop raises it to about 53%; if the balance is then assumed to reach $4,200, LTV is 56%.
- In a Bank of Canada-hosted staff paper by Jonathan Chiu and Furkan Danisman examining Aave V3 on Ethereum from January 27, 2023, through May 6, 2025, collateral-price changes accounted for debt-weighted estimates of 97.28% of health-factor deterioration among the ten users with the largest individual liquidations and 84.40% among all liquidated users, measured over the hour before each user’s largest liquidation.
- No LTV gap is safe for every borrower. Stress-test your position against the lender’s threshold, collateral-price declines, debt growth and your ability to repay or add collateral.
- Before depositing collateral, confirm whether the platform calculates LTV per asset or across a weighted basket, and check its liquidation trigger and warning period.
- A California consent order documented terms under which Nexo Capital could automatically liquidate collateral through a margin-call process when LTV reached or exceeded 83.33%. Check your own lender’s trigger and its terms on collateral custody and rehypothecation.
Learn how borrowing against crypto works, what risks to consider, and how to keep long-term Bitcoin and Ethereum exposure. Explore borrowing strategies
Table of Contents
- What LTV means in crypto and how to calculate it
- A numeric example showing how LTV moves with price and interest
- Why LTV changes trigger liquidations
- What counts as a good LTV, and simple benchmarks to use
- How to actually reduce your liquidation risk
- Where to learn more about borrowing safely
- How LTV calculations differ across lending platforms
- How collateral type changes your borrowing capacity
- What regulation means for your crypto-backed loan
- How interest rates and LTV work together against you
- Common ways borrowers use LTV strategically
- Ready to borrow against your crypto with a real plan
- FAQ
- Sources
What LTV means in crypto and how to calculate it
LTV answers a simple question: how much do you owe compared to what you’ve pledged? The formula is:
- LTV = (loan balance ÷ market value of collateral) × 100
Say you put up Bitcoin worth a certain amount and borrow against it. Divide what you owe by what your Bitcoin is worth right now, multiply by 100, and that’s your LTV.
There’s a difference between your initial LTV, the ratio measured when you take the loan, and your current LTV, which shifts every time the market moves. If accrued interest is included in the outstanding debt used by your lender to calculate LTV, current LTV can rise even when your collateral’s price stays flat. Interest paid separately remains a cost but does not itself increase that debt balance. Check how your lender treats interest rather than assuming a flat market means a flat LTV.
A numeric example showing how LTV moves with price and interest
Here’s the math in plain terms:
- Assume you deposit $10,000 of crypto and borrow $4,000. Starting LTV is 40%.
- Assume the collateral price drops 25%, leaving it worth $7,500 while debt stays at $4,000. LTV rises to about 53.33%.
- Assume the balance reaches $4,200 after three months. LTV is then 56% ($4,200 ÷ $7,500). Whether that approaches liquidation depends on the lender’s threshold. For illustration, if the threshold were 80%, the gap would be 24 percentage points.
That’s the core lesson: LTV isn’t static. It moves with the market and with the clock.
Why LTV changes trigger liquidations
Collateral prices can move LTV quickly. Bank of Canada research on DeFi lending examined how price changes, interest and other factors contributed to health-factor deterioration among liquidated Aave V3 users; its results describe that sample, not every borrower or market period.
Statistic: For the hour before each user’s largest liquidation, the study estimated that collateral-price changes accounted for 97.28% of debt-weighted health-factor deterioration among the ten users with the largest individual liquidations and 84.40% among all liquidated users. Price changes were prominent in this sample, but borrowers must also account for debt and their lender’s rules.
A few mechanics worth knowing:
- Health factor is a platform-specific measure reflecting collateral, debt and liquidation parameters. On Aave, a health factor below 1 makes a position eligible for liquidation; it does not mean liquidation has already been executed.
- Liquidation threshold marks when a position can become eligible for liquidation under the lender’s rules. Execution, the amount liquidated and any warning process depend on the platform and position.
- Liquidators (keepers) are third-party bots or participants who repay part of your debt and claim your collateral at a discount, which is why liquidations cost you more than a simple price correction would.
Overcollateralization does not remove risk. The BIS working paper on decentralized market fragility discusses liquidation discounts and floating interest rates, both of which can affect outcomes depending on the position and market conditions.
What counts as a good LTV, and simple benchmarks to use
An LTV of 67% uses the same basic debt-to-collateral ratio illustrated in traditional mortgage lending. That mortgage context does not establish a crypto-loan benchmark: assess the figure against your crypto lender’s collateral and liquidation parameters.
Some practical context:
- Platforms typically size initial LTVs around collateral volatility: lower for volatile assets, higher for stablecoins.
- In a BIS working paper, Alfred Lehar and Christine A. Parlour discuss collateral worth 1.2 to 1.5 times the loan, equivalent to approximately 83% to 67% LTV, respectively. That range does not replace the actual parameters for your asset and lender.
- A conservative target keeps you well under the threshold; an aggressive one rides closer to it for a bigger loan relative to your collateral.
Stress-test example: With a hypothetical 80% liquidation threshold, a 60% starting LTV leaves a 20-point gap. If debt stays constant, a 25% fall in collateral value takes LTV to 80%; growing debt would narrow the gap sooner. This is an illustration, not a safe starting ratio.
How to actually reduce your liquidation risk
Knowing the math is one thing. Building habits around it is another. Here’s what actually works:
- Use alerts where available. Check whether your lender or tracker offers price or health-factor notifications, and monitor the position yourself. Alerts can be delayed or leave too little time to act.
- Plan for rapid changes during volatility. A daily check can miss a price move that makes your position eligible for liquidation. Monitoring frequency and alerts cannot guarantee time to repay or add collateral; assess whether your position can withstand adverse moves while you are unavailable.
- Choose lower-volatility collateral when it makes sense. Bitcoin and Ethereum typically carry different haircuts than smaller altcoins, and platforms price that risk into your available LTV.
- Size your loan to what you can top up or repay. If a 30% price drop would panic you, you borrowed too much relative to your comfort level, not necessarily too much relative to the platform’s rules.
- Make partial repayments during sustained volatility. Paying down even a portion of your loan balance drops your LTV immediately and buys you room.
- Read the contract terms before you borrow. Look for rehypothecation rights, liquidation triggers and governing jurisdiction. A California DFPI consent order against Nexo Capital documented terms under which Nexo Capital could automatically liquidate collateral through a margin-call process when LTV reached or exceeded 83.33%; your lender’s terms may differ.
Pro Tip: If a platform’s liquidation trigger isn’t clearly stated in plain language, treat that as a risk signal on its own and build in extra buffer.
For a deeper walkthrough of the liquidation process itself, our guide on crypto loan liquidation covers the mechanics step by step.
Where to learn more about borrowing safely
This explainer is meant to give you the math and the mental model, not to talk you into anything. If you want to go further, our guide to borrowing against crypto walks through the step-by-step mechanics of taking out a loan without selling your holdings.
Our Daily Yield System frames borrowing as a decision to assess, not a step everyone should take. Looking at holdings, debt and health factors together can help you ask more specific questions of a portfolio-aware AI coach or a human guide. Those tools cannot prevent liquidation or replace your decisions.
If you’re trying to decide whether borrowing makes more sense than selling in the first place, our comparison on borrowing against crypto vs. selling breaks down the trade-offs in plain terms. We’d rather you understand what can go wrong before you put a dollar at risk than learn it the hard way during a liquidation.
How LTV calculations differ across lending platforms
Portfolio LTV is total debt value divided by total collateral value. In a multi-asset position, that ratio is distinct from the weighted liquidation threshold. On Aave, health factor combines total collateral value, the collateral-weighted liquidation threshold and total debt value. Asset prices and the composition of collateral can affect these measures differently.
Liquidation thresholds and procedures also vary. Some lenders may offer a margin-call process; on protocols such as Aave, a position can become eligible for permissionless liquidation when its health factor falls below 1. Do not assume you will receive a warning or a grace period.
Before depositing collateral, check how the lender values each asset, which assets count as collateral, the borrowing limits and liquidation thresholds, and whether it uses an account-level health factor. Do not assume there is a warning or grace period before liquidation.
How collateral type changes your borrowing capacity
The asset you pledge affects borrowing limits and liquidation thresholds, which you must check for the specific lender and market. Some stablecoin collateral may have higher borrowing limits than volatile crypto, but stablecoins can lose their peg and carry issuer, redemption and protocol risks. Bitcoin and Ethereum prices can also move sharply against a loan.
This creates a trade-off for long-term holders. Depending on the lender’s asset parameters, you may be able to borrow less against Bitcoin relative to its value than against an accepted stablecoin of equal value. As a hypothetical stress test, ask what happens if Bitcoin collateral falls 20%; the linked discussion concerns broader crypto-derivatives risk, not evidence that such a fall occurred overnight. Stablecoins can also lose their peg.
Mixing collateral types adds another layer if the lender allows it. A position containing Bitcoin and a stablecoin may use asset-specific weights and thresholds, so check the lender’s account-level calculation rather than assuming a simple average. Compare how each asset affects borrowing capacity and how a price fall or loss of peg could affect the whole position. Neither a volatile asset nor a stablecoin makes a high LTV safe by itself.
What regulation means for your crypto-backed loan
Regulatory oversight of crypto lending has tightened, and the findings coming out of enforcement actions are worth your attention, not because they’re scary headlines, but because they reveal exactly what to check in your own loan agreement.
A California DFPI consent order against Nexo Capital documented an automatic-liquidation provision and findings about the firm’s assessment of borrowers’ ability to repay. Separately, SEC enforcement actions and related press releases include an SEC action concerning registration of Nexo’s Earn Interest Product. That securities matter is distinct from the DFPI’s borrower-repayment finding. One example within the topic of SEC enforcement overview and related press releases (SEC, 2023) is the agency’s January 19, 2023 announcement about Nexo’s Earn Interest Product; the linked page covers that single action.
None of this means crypto-backed loans are illegal or unsafe across the board. It means the legal protections and oversight vary by platform, by jurisdiction, and by how a contract is written. Before you borrow, read the terms for language about who legally holds your collateral, whether the platform can rehypothecate it (lend it out again to someone else), and what jurisdiction governs any dispute. If that language is vague or buried, treat it as a flag and ask direct questions before you commit, or talk to a qualified professional about your specific situation.
How interest rates and LTV work together against you
Interest is a borrowing cost whether you pay it separately or it accrues into the amount owed. When accrued interest is included in the outstanding debt used to calculate LTV, it raises the ratio even if collateral value stays flat. Interest paid separately does not itself increase that debt balance.
With a floating rate, borrowing costs can change while collateral prices move. The BIS working paper on systemic fragility discusses how rising rates and falling collateral values can contribute to liquidation risk. Check both sides of the ratio rather than watching only the price chart.
Check whether accrued interest is included in your lender’s outstanding-debt calculation, and account for all interest in your total borrowing cost. If your rate floats, check whether it has changed. A genuinely fixed rate can make the rate more predictable, but interest may still accrue and increase what you owe. Check any repricing provisions and the total borrowing cost before comparing loans.
Common ways borrowers use LTV strategically
One reason a holder might consider a crypto-backed loan is to access cashflow without an immediate sale of the pledged asset. That does not guarantee a particular tax result: the arrangement, jurisdiction and later events, including collateral disposal or debt cancellation, matter. Our guide on crypto loans and capital gains tax introduces questions to examine.
A borrower might also deploy loan proceeds elsewhere while retaining exposure to pledged Bitcoin or Ethereum. That adds financing and deployment risks; income and appreciation are not guaranteed.
Comparing loan size, repayment capacity and total cost is useful in any borrowing decision. CK the Mortgage Guy is a traditional mortgage resource; its home-lending context does not establish suitable LTVs or liquidation protections for crypto-backed loans.
Before borrowing, plan how you would repay, test a hypothetical 30% collateral-price fall, and consider whether you could add collateral or repay debt if necessary. An exit plan helps you assess the risk; it cannot guarantee that you can act before liquidation.
Ready to borrow against your crypto with a real plan
Understanding LTV before borrowing gives you a chance to assess the downside, not just the amount available to borrow.
OverseasDeFi combines borrowing education, portfolio tools, portfolio-aware AI coaching and live human guidance. Seeing holdings, debt and health factors together can help you assess adverse-price scenarios and decide what questions to ask. Monitoring can help you notice a deteriorating position; it cannot prevent liquidation.
Community and Accelerator offer different levels of support. Review the current options before deciding whether either fits your learning needs.
If you’re holding crypto that’s just sitting there while you wait for the next cycle, visit Overseasdefi to see which path fits where you are right now.
FAQ
Is a 67% LTV good?
It depends on the lender’s rules, your debt and your collateral. If the liquidation threshold is 80%, 67% LTV leaves a 13-percentage-point gap. With one collateral asset and constant debt, a 16.25% fall in its value would bring LTV to 80%. Interest or other debt changes could reduce that room sooner.
Are crypto-backed loans a good idea?
They may suit some holders who need liquidity without an immediate sale, but falling collateral values, growing debt and liquidation terms can create substantial risk. Check the lender’s rules, test adverse scenarios and plan how you would repay or add collateral before deciding whether to borrow.
What does 125% LTV mean?
Under the simple LTV formula, 125% means the debt equals 1.25 times the current collateral value—for example, $1,250 owed against $1,000 of collateral. A lender’s liquidation rules determine what would happen to an actual position.
What is an acceptable loan to value ratio?
There is no universally acceptable starting ratio. Compare the proposed LTV with your lender’s asset-specific borrowing and liquidation thresholds, interest and other debt costs, and adverse-price scenarios. Consider whether you could repay or add collateral if the position deteriorates.
Sources
- DeFi lending: returns, leverage and liquidation (Bank of Canada, 2026)
- Systemic fragility in decentralised markets (BIS Working Paper 1062)
- Consent Order: Nexo Capital Inc. (California DFPI, 2026)
Questions about borrowing against crypto? Contact us by email: Email usRoman.rida@overseasdefi.com
Or call: +1 310 569 7547