DeFi Borrow LTV

DeFi Borrow LTV: Loan-to-Value & Liquidation

In DeFi lending, the Loan-to-Value ratio weighs your debt against the collateral backing it: LTV = debt_USD / collateral_USD. Every market sets a maximum LTV at origination, typically somewhere in the 50–80% band, and a higher liquidation threshold above that. Say you deposit $1,000 in ETH at a 50% max LTV; you can then borrow up to $500 in USDC. Should ETH drop far enough that your effective LTV crosses the liquidation threshold, a keeper bot steps in, repays part of the debt and takes collateral along with a liquidation bonus of 5–15%.

DeFi loans are overcollateralised. You always lock up more value than you borrow, simply because the protocol can't come after you personally if you walk away. Algorithmic stablecoins like DAI run on CDPs (Collateralised Debt Positions) at MakerDAO: lock ETH/wBTC/stables, mint DAI against them, and when you close the CDP the DAI is burned and your collateral comes back, minus a stability fee.

Applications

People use this to borrow stablecoins without selling crypto (deferring tax), to lever up long positions through looping, to short an asset by borrowing it and selling, and to mint DAI as a non-custodial stablecoin for payments or yield.

FAQ

What price triggers liquidation? liq_price = debt / (collateral_qty × liquidation_threshold). Leave yourself room. When markets are choppy, keep your effective LTV well under 50% of the cap.

How can I avoid being liquidated? Add more collateral, pay down part of the debt, or switch to safer collateral such as stETH or a stablecoin LP that carries a higher liquidation threshold. Most UIs surface a “health factor”; keeping it above 1.5 gives you a comfortable buffer.

Are flash-loan attacks a concern? Not for your position directly, but flash-loan-driven oracle manipulation has set off cascading liquidations that caught bystanders in the blast. Stick to markets running Chainlink + TWAP oracles.