High LTV

Definition ∞ High LTV, or high Loan-to-Value, indicates a lending scenario where the amount borrowed is a significant proportion of the collateral’s value. In decentralized lending, a high LTV ratio means a borrower has taken out a loan that is close to the maximum permissible amount relative to their deposited digital asset collateral. While offering greater capital efficiency for borrowers, a high LTV also presents increased liquidation risk if the collateral’s value declines even slightly. This metric is critical for assessing lending protocol risk.
Context ∞ The management of high LTV positions is a central aspect of risk management in decentralized lending protocols, frequently discussed in crypto news during periods of market volatility. Protocols continuously adjust LTV ratios and liquidation thresholds to maintain solvency and protect lenders. Users with high LTV loans face heightened risk of automatic liquidation, which can have cascading effects across the DeFi ecosystem during sharp price corrections.