Dynamic Loan-To-Value
Last updated
Last updated
The Loan to Value (LTV) ratio defines the maximum amount of currency that can be borrowed with a specific collateral. It’s expressed as a percentage: at LTV=30%, for every $100 worth of asset collateral, borrowers will be able to borrow $30 worth of USDC.
With the latest update to our underlying model, users can now avail themselves of loans amounting to up to 75% of the actual value of their assets. This enhancement is coupled with our steadfast commitment to upholding the highest standards of financial security, positioning us as a leading RWA-backed protocol in terms of advanced safety measures.
Unlockd's Data Science team has developed a sophisticated Dynamic Loan-To-Value (LTV) model, expertly balancing user risk in an optimal way.
The LTV model considers a range of factors, such as the volume of data available for asset valuation and the current market volatility. High-quality, abundant data coupled with low volatility leads to a higher LTV, reflecting the enhanced reliability of the valuation algorithm in stable market conditions.
The model is designed to adjust LTVs in real-time, responding to changes in overall market volatility, specific asset class volatility, and the volatility of individual assets.
As a result, two assets of similar value can have different LTVs under this model. This is due to the model's nuanced approach, which extends beyond mere appraisal value, incorporating data availability, recent market fluctuations, and other relevant elements into its calculation.
Proactive Safeguards: Beyond setting loan collateral ratios, the dynamic LTV model plays a crucial role in risk mitigation. It closely monitors reserve levels and the activities of other lending protocols to inform its decisions. An increase in reserves triggers a strategic response from the model, reducing the issuance of new category-based loans, thereby managing selling pressure on the protocol.
Maintaining Stability: This proactive management of lending activities, based on reserve levels and market dynamics, is vital in sustaining the protocol's integrity and resilience. It effectively shields the protocol from potential adverse effects of market fluctuations, securing its long-term health and reliability.
You can learn about all the aspects of this model here: