LTV or Loan To Value ratio is a risk assessment metric that refers to the ratio between the loan amount and the collateral value used to cover for the loan.

Normally a higher LTV ratio is considered higher risk, thereby usually making the loan more expensive for the borrower, while with a lower LTV ratio is considered a less risky loan. The LTV ratio is calculated by dividing the loan amount by the collateral value. When using INLOCK, the collateral is always a form of cryptocurrency (in the beginning BTC,BCH,ETH,LTC with an additional currency every 6 months), the value of it is very easy to calculate. Our loans are always a minimum of 105% backed, so our lenders are insured of full loan & interest repayment. In the case of traditional loans, higher LTV usually means higher interest rates, but with INLOCK this metric doesn’t play a role in sizing up interest rates, because every lender can rest assured their loans are fully backed.

For example, if the borrower wants to take out a loan of $20,000 with $25,000 worth of crypto as collateral, his LTV ratio would be 80%. The level of overcollateralization depends on the borrower, the minimum value is 105%. The margin call (beginning of contract termination) is at 105%, so all loans should be more than 5% overcollateralized, otherwise the slightest downward movement in collateral value would result in contract termination.

A high overcollateralization is in the borrowers favour, it secures their collateral against a decrease in crypto value. We think it is very important for borrowers to be able to specify custom overcollateralization amounts, and for lenders to sort through borrowers based on various metrics, including LTV. To maintain favourable conditions for borrowers, we have institutional lenders compete for them on our platform by offering loans with different terms to their lending requests. The borrower is free to choose from these offers, allowing for lower barriers to entry as opposed to if we were giving out loans from a centralized pool of liquidity, the incentivization of lenders to compete results in the best lender being able to contract the most.

We pulled the data from the server running our prototype platform to show you how others are using it, and we can see the average LTV ratio is 45,1%, meaning the average user overcollateralizes their loan by 156.9%.

The addititional stats of the mvp-demo period are:

Total locked collateral value: $812 306
Total loan amount: $445 806
Total number of users: 1486

This is an important feedback for us, that the users are striving for safe LTV ratios intuitively, even if they are dealing with demo money.

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