Understanding margin calls in crypto lending

What is a margin call?

A margin call is a protective measure used in lending when a borrower's collateral falls below a required level. It serves as a warning that the value of the pledged assets has dropped significantly, and the borrower needs to either add more collateral or reduce their loan balance to maintain a safe loan-to-value (LTV) ratio. In crypto lending, margin calls are triggered when the LTV surpasses a specific threshold due to market fluctuations. If a borrower does not respond to the margin call, the lender may liquidate a portion of the collateral to cover the shortfall.

Milo’s crypto mortgage and how margin calls work

Milo’s crypto mortgage allows borrowers to finance U.S. real estate using their crypto as collateral, without needing to sell their assets. Borrowers can secure financing up to 100% LTV, meaning they can purchase a home with no cash down by pledging their crypto instead.

Unlike traditional mortgages that rely on credit scores and income verification, the crypto mortgage is entirely asset-based, making it a powerful option for crypto investors looking to leverage their holdings for real estate investment.

When does a margin call happen? A margin call happens when the value of your crypto collateral drops below the required threshold set at closing. The exact percentage drop that triggers a margin call depends on your specific loan terms and structure, which are determined when you take out the mortgage.

A general rule of thumb: the more buffer you have, the more the value would need to drop before a margin call is issued.

Expected margin call and liquidation ranges While specific numbers vary based on the terms agreed upon at closing, here’s a general range for Milo’s most popular crypto mortgage programs:

100% LTV mortgage → margin call is triggered when the collateral drops 56%-69% from its original value → liquidation may be triggered when the collateral drops 60%-71% from its original value

90% LTV mortgage → margin call is triggered when the collateral drops 56%- 58% from its original value → liquidation may be triggered when the collateral drops 60%-62% from its original value

Since every mortgage structure is unique, the best way to understand your margin call threshold is to review the terms agreed upon at closing.

What happens when a margin call is issued?

A margin call doesn’t change your monthly mortgage payment. Instead, it’s a warning that your collateral buffer is too low and you need to add more collateral or make a principal payment to restore it.

Borrowers have 72 hours to:

• Add more crypto collateral to reduce LTV
• Make a principal payment to bring the LTV back in range

If no action is taken and the collateral continues to drop past the liquidation threshold, liquidation may be considered. However, Milo has never liquidated a client’s collateral and actively works with borrowers to help them navigate margin calls.

Milo’s crypto loan and margin call thresholds

Milo’s crypto loan is a flexible, asset-based lending product that allows borrowers to access liquidity without selling their crypto. The loan is fully collateralized by digital assets, meaning there are no credit checks or income requirements, just the collateral itself.

How milo’s crypto loan works

• Borrow up to 50% of your crypto’s value (2:1 collateral ratio), or opt for a 3:1 collateral ratio for greater buffer against margin calls
• Receive funds as soon as the same day once the required collateral is posted
• Loan terms start at 12 months, and borrowers can roll over their loan as long as the LTV remains within an acceptable range

Margin calls and liquidation in Milo’s crypto loan

Milo’s crypto loan is backed by collateral, and margin calls are triggered based on the collateralization ratio chosen at the time of borrowing.

• 2:1 collateral ratio → margin call happens when the collateral drops 25% from its original value, liquidation at 35%.
• 3:1 collateral ratio → margin call happens when the collateral drops 50% from its original value, liquidation at 56.67%.

Similarly to the crypto mortgage, a margin call is a warning, not an immediate liquidation, and the same rules appy with regards to restoring their collateral buffer. If no action is taken and the collateral continues to decline, Milo reserves the right to liquidate to restore the required LTV. However, we take all possible measures to avoid liquidation, and to date, no borrower has ever been liquidated.

How Milo’s approach is different

Unlike some crypto lenders that instantly liquidate collateral the moment a threshold is hit, Milo’s system is designed to provide borrowers with a structured process that prioritizes borrower flexibility and risk management.

Two-tiered approach to risk management Milo follows a structured, two-tiered system to provide borrowers with time and flexibility before liquidation is considered:

• Margin call notification → When the margin call threshold is reached, borrowers are given 72 hours to take corrective action.
• Liquidation threshold monitoring → If the collateral continues to decline past the liquidation threshold, the company may liquidate to restore LTV, but only if absolutely necessary.

To date, Milo has never issued a margin call or liquidated a borrower's collateral; A reflection of our robust risk management framework and client-first approach. We take great pride in providing structured yet flexible safeguards that allow borrowers to navigate market fluctuations without the fear of immediate liquidation.

Margin calls and protecting your assets

Margin calls are a normal part of risk management in crypto lending, ensuring that both borrowers and lenders are protected from excessive market volatility. Understanding how LTV, margin call thresholds, and liquidation levels work can help borrowers make informed decisions about their loans. Milo’s structured, non-automated approach gives borrowers flexibility while still maintaining the necessary safeguards. Whether securing a crypto mortgage or using a crypto-backed loan, borrowers have the tools and time to protect their assets while keeping their loans in good standing.

The opinions expressed in the Blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.