lending and yield
Borrowing stablecoins against a crypto holding is pitched as a way to raise cash without triggering a sale. Mechanically it is a margin loan against a volatile asset, and the only variable that matters is how far the collateral can fall before it is sold for you.
The numbers
Loan to value is the loan divided by the collateral value. Every venue publishes an initial LTV and a liquidation LTV. The distance between your starting point and the liquidation threshold, expressed as a percentage fall in the collateral, is the only figure worth writing down.
| Initial LTV | Liquidation at | Collateral fall that triggers it |
|---|---|---|
| 25% | 80% | about 69% |
| 40% | 80% | 50% |
| 50% | 80% | 37.5% |
| 65% | 80% | about 19% |
A 19 per cent fall in a major crypto asset is an ordinary month, not a crisis. At a 65 per cent starting LTV the position is not a loan, it is a bet on the next few weeks.
The parts people miss
- 01Liquidation is usually partial and fee-bearing, and it happens at the worst available price.
- 02Interest accrues against the same collateral, so LTV drifts upward even in a flat market.
- 03Rehypothecation: ask whether the platform lends your collateral out. The answer changes what happens in a platform failure.
- 04Selling and rebuying may be cheaper than borrowing once interest and liquidation risk are priced in. Tax treatment is jurisdiction specific and is a question for a professional, not a blog.
A collateralised loan does not remove the decision to sell. It hands the timing of that decision to an algorithm.
Written by Aram Latifi. Ex-quant developer, now writing about the plumbing of retail trading. No affiliate links on this site.
