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Crypto Loan LTV and Liquidation: How to Avoid Losing Your Collateral
Loan-to-value, or LTV, decides how much you can borrow against your crypto and when your collateral gets sold. Understanding it is the single most important skill for anyone taking a crypto-backed loan.
What LTV means
LTV is the loan amount divided by the current value of your collateral, shown as a percentage. If you borrow $4,000 against $10,000 of ETH, your LTV is 40%. Because collateral prices move constantly, your LTV changes every minute even if you do nothing.
Three numbers to know
- Maximum LTV: the highest LTV allowed when you open or increase a loan.
- Margin call or warning level: some lenders alert you before liquidation.
- Liquidation threshold: the LTV at which collateral is sold to repay the debt, usually with a penalty.
Worked example
| Collateral value | Loan | LTV | Status (threshold 75%) |
|---|---|---|---|
| $10,000 | $5,000 | 50% | Safe |
| $8,000 | $5,000 | 62.5% | Safe, getting closer |
| $6,700 | $5,000 | 74.6% | Close to liquidation |
| $6,500 | $5,000 | 76.9% | Liquidated |
In this hypothetical example a 33% fall in the collateral price is enough to trigger liquidation. Crypto prices can move that much in days.
How to calculate your liquidation price
Liquidation price = loan amount ÷ (collateral units × liquidation threshold). With a $5,000 loan, 2 ETH as collateral and a 75% threshold, liquidation happens if ETH falls to about $3,333.
How to avoid liquidation
- Borrow well below the maximum LTV; many borrowers stay under half of it.
- Set price alerts on your collateral.
- Keep spare stablecoins or collateral ready to top up the loan.
- Repay part of the loan when markets get volatile.
- Prefer collateral you would be comfortable holding through a large drawdown.
Back to the crypto loans hub, or compare CeFi and DeFi loans.
Frequently asked questions
A lower LTV is safer. Many borrowers keep it well below the maximum so a sharp price drop does not trigger liquidation.
Yes, adding collateral or repaying part of the loan lowers your LTV.
Usually only part of the collateral is sold to cover the debt and penalty, but the loss can still be large.
This page is for educational purposes only and is not financial, investment or tax advice. Crypto assets are volatile; you can lose all of your money.