The loan-to-value ratio expresses the maximum amount of an asset that can be borrowed with a given amount and type of collateral. It is the maximum the ratio of a loans' value to a corresponding collateral's value can reach.
A loan to value ratio of 70% for an asset deposited as collateral would mean that up to 70% of the asset's value in another asset may be borrowed.
For example, if you deposit 10 BNB worth 1000 USDT as collateral with an LTV of 70%, you can borrow up to 700 USDT.
The max loan to value ratio for a wallet is the weighted average of the loan to value ratios of its assets deposited as collateral.
The liquidation threshold for an individual loan is the bound at which the value of a loan is no longer adequately covered by the value of the collateral. Say the liquidation threshold is 75% for an asset deposited as collateral. If the value of the asset borrowed rises above 75% of the value of the collateral, the position is at risk of being liquidated.
Typically, there is a cushion between the loan-to-value ratio, which defines the maximum a borrower can borrow, and the liquidation threshold, the point at which the position can be liquidated. This provides an window for borrowers before their position is liquidated.
Alice deposits 10 BNB worth 1000 BUNNY as collateral with an LTV of 70% and a liquidation threshold of 75%.
She borrows the maximum of 700 BUNNY.
The value of BNB drops so that the ratio of the dollar value of her 10 BNB collateral to the dollar value of the 700 BUNNY is now 72%. Though ratio is now over the LTV, it remains under the liquidation threshold so Alice is safe for now.
The value of BNB drops once again so that the ratio of the dollar value of her 10 BNB collateral to the dollar value of the 700 BUNNY is now 76%. Alice's position can now be liquidated.