What a bank would do — and what you do instead
A bank lends against your income and credit history, sets a rate and, if you fall behind, works through a slow and regulated collections process. Crypto lenders and protocols lend against collateral instead, with no credit check. That makes borrowing fast, but enforcement is fast too: if the collateral falls far enough, it is sold automatically. Being your own bank here means being your own risk manager.
LTV in one line
LTV = loan ÷ collateral value. Borrow $3,000 against $10,000 of BTC and your LTV is 30%. If BTC falls by half, the collateral is worth $5,000 and your LTV jumps to 60% — without you doing anything.
Health factor in one line
In DeFi, health factor ≈ (collateral value × liquidation threshold) ÷ loan. Above 1 you are safe; at 1 or below you can be liquidated. A health factor of 2 roughly means prices could halve before liquidation.
Try it
Liquidation simulator
- New collateral value
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- LTV
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- Health factor
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- Drop that triggers liquidation
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Health factor = collateral value × liquidation threshold ÷ debt. Below 1.0, the position can be liquidated (usually with a penalty of 5–10%).
Education only, not financial advice. Rates change and are not guaranteed. CoinPayBank is not a bank.
SourcesWhat happens at liquidation
A liquidator repays part of your loan and receives some of your collateral at a discount. You keep the remaining collateral but lose the discount, which acts as a penalty. Custodial lenders do something similar: Ledn liquidates at 80% LTV, Coinbase’s Morpho-based loans at 86% (as of late September 2026).
Frequently asked questions
Is a higher health factor always better?
Safer, yes. The trade-off is borrowing less against the same collateral.
Can I be liquidated if the price recovers quickly?
Yes. Liquidations happen as soon as the threshold is crossed, even if the price rebounds minutes later.
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