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What Is the Significance of the Loan-to-Value (LTV) Ratio in a Smart Contract Loan?

LTV is the core risk parameter determining the maximum loan amount and, most critically, the threshold at which automatic collateral liquidation is triggered.
Greeks.Live06.11.25

What Is the Significance of the Loan-to-Value (LTV) Ratio in a Smart Contract Loan?

The LTV ratio is the core risk parameter, calculated as the loan amount divided by the collateral value. It determines the maximum amount a borrower can take out and, critically, the liquidation threshold.

If the collateral value drops and the LTV exceeds the pre-defined liquidation ratio, the smart contract automatically triggers the sale of collateral to protect the lender's funds.

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