Something I noticed while looking at @TermMax ’s collateral model: the amount you can borrow and the point where liquidation starts aren’t the same thing.
Say I have $100K worth of collateral. My first thought would probably be to borrow as close to the limit as possible. But that also means leaving less room if the collateral price moves against me.
TermMax separates these two points with MLTV and LLTV. MLTV is the more conservative borrowing limit, while LLTV is the point where liquidation can be triggered. What I find interesting is the space between them.
That gap is basically a buffer. I’m not using every possible dollar of borrowing capacity just because my collateral technically allows it. And that made me think differently about “capital efficiency.”
We usually treat higher LTV as better because more capital is being put to work.
But if using that extra capacity also leaves the position much closer to liquidation, is it really more efficient?
Maybe there’s a point where unused borrowing capacity isn’t inefficiency. it’s risk management.
How much buffer should a borrower actually be willing to give up for higher capital efficiency?
#TermMax @TermMax
Say I have $100K worth of collateral. My first thought would probably be to borrow as close to the limit as possible. But that also means leaving less room if the collateral price moves against me.
TermMax separates these two points with MLTV and LLTV. MLTV is the more conservative borrowing limit, while LLTV is the point where liquidation can be triggered. What I find interesting is the space between them.
That gap is basically a buffer. I’m not using every possible dollar of borrowing capacity just because my collateral technically allows it. And that made me think differently about “capital efficiency.”
We usually treat higher LTV as better because more capital is being put to work.
But if using that extra capacity also leaves the position much closer to liquidation, is it really more efficient?
Maybe there’s a point where unused borrowing capacity isn’t inefficiency. it’s risk management.
How much buffer should a borrower actually be willing to give up for higher capital efficiency?
#TermMax @TermMax