What is the loan-to-value (LTV) ratio and how to maintain it?

The loan-to-value (LTV) ratio shows the ratio between the loan amount and the value of the collateral backing it, and is usually expressed as a percentage. For instance, if you take a loan of 1,000 EUR and pledge 0.2 BTC, which is worth 2,000 EUR at the time, as collateral, your initial LTV% is 1,000 EUR/2,000 EUR = 50%.

As time goes by, the value of your collateral might fluctuate. In this case, the value of BTC depreciates and the 0.2 BTC collateral is now worth 1,250 EUR. As a result, your LTV increases to a dangerous 1,000 EUR/1,250 EUR = 80%. If the value of your collateral decreases even further, we might liquidate a part of your collateral to cover a portion of the loan.

In such case, we would firstly issue an LTV warning and encourage you to stabilize the LTV ratio of your loan. This can be done it two ways:

Repay part of the loan: You repay 375 EUR of your initial credit, bringing the remaining value to 625 EUR. Your LTV is now healthy again at 625 EUR/1,250 EUR = 50%.

Increase the collateral: You deposit an additional 0.12 BTC, the equivalent of 750 EUR, and in this way increase your collateral to 0.32 BTC (or 2,000 EUR). Your LTV is now stabilized at 1,000 EUR/2,000 EUR = 50%.

How do LTV warnings work?

Warning notifications are sent via email and shown on the platform when the LTV ratio reaches 70% (for loans that were issued with LTV lower than 75%), and 80%. If these warnings are not dealt with by you personally, a part of your collateral will be liquidated to cover a portion of the loan, bringing the LTV to 75%.