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A loan can be fully collateralized when it's issued and still become riskier without the borrower taking out another dollar. That's why collateral monitoring matters. At Forest Road Vault, the digital-assets lending facility uses specific loan-to-value (LTV) thresholds to manage this exposure. Here's how the structure works. At origination, the facility operates with a 50% LTV threshold. In simple terms, a $500,000 loan would require $1 million in eligible collateral at that ratio. Now imagine the collateral's market value falls to $800,000 while the outstanding loan remains $500,000. The LTV rises to 62.5%. Nothing changed about the loan balance. The collateral simply became less valuable. FRV's facility has a 65% margin-call threshold. When that threshold is reached, the borrower may be required to provide additional collateral or reduce the outstanding debt, according to the facility's terms. The liquidation threshold sits at 80%. This creates a structured approach to monitoring collateral deterioration rather than waiting until the collateral is worth less than the outstanding loan. But these thresholds don't eliminate risk. Sharp market movements, execution delays, and insufficient market liquidity can still affect the amount recovered during liquidation. That's an important distinction. Collateralization provides a mechanism for managing credit exposure. It doesn't guarantee that every loan will be repaid in full. For FRV depositors, understanding these thresholds helps explain how the protocol approaches risk in its digital-asset lending operations. The objective is to identify deteriorating collateral coverage early and establish clear intervention points before losses become more severe.

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