LTV vs LLTV: origination threshold vs liquidation trigger

LTV and LLTV look like the same acronym with an extra letter, and that similarity causes real confusion, because they answer two different questions at two different moments in a loan's life. LTV asks: how much can this borrower draw today. LLTV asks: at what point does this position get liquidated.

How it works

Loan-to-value (LTV) is the ratio of a loan's size to the value of its collateral, checked at origination and tracked continuously afterward. A borrower posting $100,000 of ETH and drawing a $60,000 loan has a 60% LTV. Protocols and lenders set a maximum origination LTV, the most a borrower is allowed to draw against a given collateral type on day one, calibrated to leave headroom before any liquidation risk becomes live.

Liquidation LTV (LLTV) is a separate, higher threshold: the point at which a position becomes eligible for liquidation. On Morpho Blue specifically, LLTV is a fixed, immutable parameter set when a market is created, not something governance can quietly adjust after the fact. A market might allow origination up to 70% LTV while setting its LLTV at 86%, leaving a 16-point buffer between what a borrower can draw and the point where a keeper is entitled to liquidate the position.

That gap between origination LTV and LLTV is deliberate, not incidental. It exists to absorb ordinary price volatility in the collateral without triggering a liquidation on every routine market move. A wider gap means more room to breathe during volatility, at the cost of the lender extending more borrowing power relative to the true liquidation cushion. A narrower gap protects the lender more tightly but leaves borrowers exposed to being liquidated on comparatively small price swings.

Why it matters

The distinction matters most when evaluating a lending market's actual risk, not just its headline advertised LTV. A market quoting "70% LTV" sounds identical whether its LLTV is 75% (a razor-thin, aggressive market) or 90% (a conservative one with a wide cushion). Two markets with the same origination LTV can carry meaningfully different liquidation risk depending entirely on where LLTV sits, and that's the number a serious borrower or lender actually needs to underwrite.

Immutability compounds why this matters for institutional users specifically. Because LLTV can't be changed after a Morpho Blue market is deployed, both sides of a loan know, with certainty, exactly what triggers liquidation for the life of that market. That's a meaningfully different guarantee than a protocol where governance can vote to adjust liquidation parameters after positions are already open, which is precisely the kind of parameter risk isolated, immutable markets were designed to remove.

Where this shows up in Rekord

Rekord sets origination LTV conservatively below each market's LLTV specifically to give institutional borrowers a real operating buffer, rather than pricing loans right up against the liquidation line. For how that buffer interacts with overcollateralization more broadly, see Overcollateralization in institutional crypto-backed lending.