Understanding LTV Ratios and Liquidation Risk in Crypto Loans
If there's one concept that determines whether a crypto-backed loan works in your favour or against you, it's the Loan-to-Value ratio (LTV). Get it right and you have a flexible financial tool. Ignore it and you risk losing collateral you didn't intend to part with.
This guide explains how LTV works, what happens when it moves in the wrong direction, and how to manage your position so that liquidation stays a theoretical risk rather than a real one.
In this article:
- What LTV means and how it's calculated
- How LTV thresholds work across different loan types
- What triggers a margin call and what to do when you receive one
- How liquidation actually works — and what it costs
- How to choose the right LTV for your situation
- Practical strategies to protect your collateral
What Is Loan-to-Value?
LTV is the ratio between the amount you borrow and the value of the collateral you deposit. It's expressed as a percentage, and it's the central variable that governs risk in any crypto-backed loan.
The formula is straightforward: divide the loan amount by the collateral value, and multiply by 100. If you deposit €10,000 in BTC and borrow €5,000, your LTV is 50%.
A higher LTV means more liquidity from the same collateral — but less buffer between your current position and the liquidation threshold. A lower LTV means less cash upfront, but considerably more room to absorb market volatility without your loan being at risk.
The high price volatility of crypto assets means that collateral requirements tend to be much higher than the loan size. On CeFi platforms like Nebeus, LTV ratios are set at origination and reflect both the asset type and the product selected.
LTV Across Nebeus Loan Products
Different loan products carry different LTV tiers, and the right choice depends on how much liquidity you need versus how much volatility buffer you want to maintain.
The StableLoan at 95% LTV stands apart because the collateral — USDC or EURC — doesn't fluctuate in value. The liquidation risk that applies to volatile assets like BTC and ETH is largely absent here. For everything else, the LTV tier you choose at origination directly affects how much market movement your loan can absorb.
How LTV Moves Over Time
Your LTV at origination is not necessarily your LTV for the life of the loan. If the value of your collateral falls, your LTV rises — and this is where most borrowers run into trouble.
A practical example: you deposit 0.5 BTC worth €20,000 and take a Flexible Loan at 50% LTV, borrowing €10,000. Your LTV at origination is 50%. If BTC drops 20% and your collateral is now worth €16,000, your LTV rises to 62.5%. If BTC drops a further 15% and collateral falls to €13,600, your LTV is now around 73% — and depending on the margin call and liquidation thresholds for your product, this is where alerts start.
The loan amount doesn't change. The debt stays fixed. It's the collateral value that moves, and in a volatile market, it can move quickly.
Margin Calls: What They Are and What to Do
A margin call is a notification that your LTV has risen above a set threshold and that action is required to bring it back into a safe range. It's not an automatic liquidation — it's a warning.
On Nebeus, when the margin call threshold is reached, you have two options: deposit additional collateral to bring the LTV back down, or repay part of the loan principal to reduce the outstanding balance. Both achieve the same result — they restore your LTV to a safe level and remove the immediate risk of liquidation.
Research from the Bank for International Settlements shows that borrowers tend to be conservative and maintain a sizable buffer above the liquidation threshold, precisely because the automatic close-out process — when triggered — generates material losses for the borrower. The data bears this out: most experienced borrowers treat the margin call threshold as a line they actively manage around, not a limit they wait to breach.
Nebeus offers optional automatic margin call management for a 2% fee. This handles collateral top-ups on your behalf if thresholds are approached — a practical option for borrowers who can't monitor their position daily.
How Liquidation Works — and What It Actually Costs
Liquidation is triggered when your LTV exceeds the liquidation threshold and no corrective action has been taken. At that point, the platform sells a portion of your collateral to bring the LTV back within the required range.
This is not unique to Nebeus — it's standard across every CeFi lending platform. What varies between platforms is the liquidation fee charged when this happens. On Nebeus, this fee is 4.5%.
To put that in concrete terms: if you deposit €10,000 in BTC and your collateral is liquidated, you pay a 4.5% fee on the liquidated portion — in addition to having lost the market exposure on the collateral that was sold. This is why liquidation should be treated as a worst-case outcome, not a built-in feature of the loan.
During the single largest deleveraging event of October 2025, overcollateralised lenders with conservative LTV ratios and excess collateral buffers fared significantly better than leveraged derivatives positions — Aave saw only 0.9% of its $21.5 billion loan book liquidated during that event. The lesson from that episode is consistent with what well-managed LTV positions have always shown: collateral buffers work.
Choosing the Right LTV for Your Situation
The LTV you select at origination sets your risk profile for the entire loan term. There's no universally correct answer, but the following factors should shape the decision.
Collateral type matters most.
Stablecoin collateral (USDC, EURC) can support a 95% LTV comfortably because there's no price volatility to drive the ratio upward. For BTC or ETH, the higher the LTV, the smaller the price drop required to trigger a margin call. At 70% LTV on a volatile asset, even a 10–15% market decline can put you in margin call territory.
Loan term changes the calculation.
A short-term loan — one to three months — gives market volatility less time to work against you. A 36-month loan at 70% LTV on BTC is a very different risk profile than the same product over 90 days.
Your ability to respond to a margin call.
If you don't have additional collateral available and can't repay part of the loan principal quickly, a high LTV on a volatile asset is a genuine liability. The margin call requires action, and if you can't act, liquidation follows.
The general principle: borrow conservatively if the collateral is volatile, borrow up to the maximum only if the collateral is stable.
How to Manage Your Position During Market Volatility
A few practical habits reduce the risk of liquidation significantly.
Monitor your LTV regularly, particularly during periods of high market volatility. It doesn't need to be daily, but knowing roughly where your position stands — and what BTC or ETH price would trigger your margin call — is basic position management.
Keep a collateral reserve. Holding back a portion of your crypto rather than depositing it all at origination gives you something to add quickly if a margin call arrives.
Consider using automatic margin call management if you're taking a longer-term loan on a volatile asset. The 2% fee is a predictable, manageable cost. An unexpected liquidation is neither.
And if the market moves materially in your favour — collateral value rises and your LTV drops well below the origination level — it's worth revisiting whether your position still makes sense at the current terms.
For a full breakdown of the loan types available and how their terms compare, read: Types of Crypto Loans Explained
New to crypto-backed loans? Start with: What Are Crypto-Backed Loans? A Complete Beginner's Guide
Next in the series: Crypto Loans for Expats and Digital Nomads: A Practical Guide — coming soon.
Disclaimer: This article is for informational and educational purposes only. It does not constitute financial, investment, or tax advice, nor an offer or recommendation of any product. Always consult a qualified financial or tax professional before making decisions involving financial products or crypto assets. Product terms and availability may vary depending on your country of residence and regulatory status.