Loan-to-value (LTV)

Loan-to-value, or LTV, is a ratio that compares a loan to the value of the collateral backing it. It is written as a percentage. A loan of 70 against collateral worth 100 has an LTV of 70 percent. Lenders use it to gauge how much risk a loan carries.

A lower LTV means the collateral is worth much more than the loan, which leaves a larger cushion if the collateral loses value. A higher LTV means a smaller cushion. The ratio appears in mortgages, auto loans, and on-chain lending, where it often sets how much a borrower can draw against a deposit.

In on-chain lending, LTV also helps define when a position becomes unsafe. If the collateral value falls and the LTV rises past a set threshold, the position can be liquidated to repay the loan. Because collateral values can move quickly, an LTV that looks safe can change.