Loan-to-Value Ratio

Crypto terminology for Local Consensus refers to the specific terms and definitions used in decentralized networks where members reach agreement on transactions, ensuring transparency and trust within local communities.

Loan-to-Value Ratio (LTV) is a financial metric used to assess the risk associated with lending against an asset, such as cryptocurrencies. It is calculated by dividing the amount of the loan by the appraised value of the asset. For example, if you want to borrow $5,000 against a cryptocurrency valued at $10,000, the LTV would be 50% ($5,000 / $10,000). A lower LTV indicates less risk for the lender, as the borrower has more equity in the asset. Conversely, a higher LTV suggests more risk, as the loan amount is closer to the asset’s value.LTV plays a crucial role in determining loan terms, including interest rates and eligibility. Lenders may impose stricter conditions for high LTV loans due to the potential for price volatility in cryptocurrencies, which can affect the value of the collateral. Understanding LTV is essential for borrowers as it affects their borrowing capacity and the overall cost of securing loans against their digital assets.

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