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.

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How LTV is Calculated

The formula for LTV is:

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

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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.

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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.

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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.

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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.