Dynamic LTV Model

Definition ∞ A dynamic LTV model is a risk management framework within decentralized lending protocols that adjusts the Loan-to-Value ratio based on real-time market conditions or specific asset volatility. This model automatically modifies the maximum amount borrowable against collateral to mitigate potential liquidation risks during periods of high price instability. It aims to maintain protocol solvency and protect lenders from excessive exposure. This mechanism promotes financial stability.
Context ∞ Dynamic LTV models are becoming increasingly important in decentralized finance lending to enhance protocol resilience against sudden market movements. News often highlights protocols implementing or refining these models to improve capital efficiency and reduce the frequency of liquidations for users. The ongoing discussion focuses on the optimal parameters and data sources for these dynamic adjustments to strike a balance between risk control and user utility. This innovation addresses inherent market volatility.