# LTV & Exposure

#### LTV (Loan-to-Value) and Exposure

**LTV (Loan-to-Value)** is a ratio that indicates how much of a loan can be taken based on the value of the provided collateral. It is a measurement of the balance between the loan amount and the collateral value, expressed as a percentage.

***

**How LTV is Calculated**

The formula for LTV is:

$$
LTV = \left( \frac{\text{Loan Amount}}{\text{Collateral Value}} \right) \times 100
$$

***

**Example**

* **Loan Amount**: 10,000 USDC
* **Collateral Value**: 20,000 USDC

Using the formula:

$$
LTV = \left( \frac{10,000}{20,000} \right) \times 100 = 50%
$$

This means that for every 20,000 USDC worth of SOL provided as collateral, the user can borrow 10,000 USDC.

***

**What is Exposure?**

**Exposure** refers to the maximum percentage of the pool's total liquidity that can be allocated to loans for a specific collateral type. It ensures that the pool's funds are diversified across multiple collaterals while maintaining defined limits for each.

***

#### **How Exposure Works**

When a user creates a pool, they can assign an **exposure percentage** to each collateral type. This percentage defines the maximum amount of the pool's liquidity that can be loaned out for loans backed by the specified collateral.

**Example**

Suppose a user creates a pool with **10,000 USDC** and assigns the following exposures:

* **SMBs (Solana Monkey Business): 20%**
* **FWOG: 50%**
* **SOL: 90%**

The maximum amount allocated for loans to each collateral type would be:

* **SMBs**: 20% of 10,000 = **2,000 USDC**
* **FWOG**: 50% of 10,000 = **5,000 USDC**
* **SOL**: 90% of 10,000 = **9,000 USDC**

This allocation applies regardless of the number of loans taken to reach the specified amounts for each collateral.

***

**Key Differences**

* **LTV**: Represents the relationship between the loan amount and collateral value as a percentage.
* **Exposure:** Defines the borrowing cap for a token by applying the configured percentage to the total pool liquidity.

Understanding LTV and Exposure helps ensure safe borrowing while maximizing the utility of your collateral.


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