Loan-to-Value Ratio (LTV ratio)

Loan-to-Value Ratio

Borrowing in the Term Structure protocol is similar to most DeFi lending protocols in terms of collateral requirements. Under the over-collateralization model, the borrower's collateral value must be larger than the loan value.

Loan-to-Value ratio (LTV ratio) indicates the ratio of loan value relative to the collateral value. Different pairs of collateral and borrowed tokens may have different Maximum Initial LTV Ratio.

LTV=DebtValue/CollateralValueLTV = Debt Value / Collateral Value

Maximum Initial LTV Ratio

The Maximum iInitial LTV Ratio is the highest acceptable ratio of the debt (principal plus interest) to collateral when the borrowing order is submitted.

For non Stablecoin-Pair Loans, the Maximum Initial LTV Ratio is 0.75, which means that the borrower can borrow up to where the debt is 75% of the value of the collateral. For the Stablecoin-Pair Loan, the Maximum Initial LTV Ratio is 0.9.

For example, Alice collateralizes USD 10,000 worth of ETH and borrows USD 5,000 worth of DAI for 6 months (0.5 year) at 5% interest. Then Alice's LTV ratio will be 5000 * (1 + 0.05 * 0.5) / 10000 = 0.5125

  • 5000 - the borrowing value of DAI

  • 0.05 - 5% interest rate

  • 0.5 - term of half a year

  • 10000 - the collateral value of ETH

  • 0.5125 - LTV ratio

Under the same term period and interest rate above, the maximum value Alice can borrow will be the DAI equivalent of USD (10000 * 0.75) / (1 + 0.05 * 0.5) ~= 7317

The Maximum Initial LTV Ratio is the highest LTV ratio allowed when placing a borrowing order. The Liquidation Mechanism will be triggered when the LTV ratio hit the Liquidation Threshold.

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