The Bitcoin Line of Credit (BLOC) is a powerful tool for liquidity, but because it is backed by a volatile asset, it requires a clear risk-management framework. Peoples Reserve uses a tiered system of alerts and automated actions designed to protect both the borrower’s remaining equity and the platform's solvency during market downturns.
Table of Contents
- The LTV Safeguard Tiers
- How Partial Liquidation Works
- The "No Cure Time" Policy
- Risk Mitigation Strategies
The LTV Risk Thresholds
Your Loan-to-Value (LTV) ratio is the "health monitor" of your loan. It is calculated by comparing your outstanding loan balance to the current market value of your Bitcoin collateral. As the price of Bitcoin drops, your LTV rises. Overcollateralizing pushes these thresholds further from activation.
| LTV Threshold | Status | Action / Description |
|---|---|---|
| 70% | Margin Warning | Proactive notification. Cue to monitor markets or prepare additional collateral. |
| 75% | Margin Call | Action Required. You must add BTC collateral or pay down a portion of your principal. |
| 80% | Final Call | Critical risk threshold. Automated systems are preparing to intervene. |
| 85% | Auto-Liquidation | System triggers an automatic sale of a portion of collateral to protect the loan position. |
Example of Safeguards
Assume a borrower starts with a $10,000 loan and has a Basic Loyalty Tier (13% APR).
The Setup: Opening the Loan
To get a $10,000 loan at the maximum 50% LTV, you must deposit $20,000 in Bitcoin.
- Loan Balance: $10,000
- BTC Collateral: $20,000
- Current LTV: 50% (Healthy)
Stage 1: The Market Dips (Margin Warning)
Bitcoin’s price drops by roughly 28%. Your $20,000 in BTC is now only worth $14,285.
LTV Calculation: $10,000 / $14,285 = 70%
Stage 2: The Slide Continues (Margin Call)
Bitcoin drops further. Your collateral is now worth $13,333.
LTV Calculation: $10,000 / $13,333 = 75%
Action: Margin Call. Peoples Reserve requests that you either add more BTC to the vault or pay down some of the $10,000 loan to bring the ratio back down.
Stage 3: The Danger Zone (Final Call)
Bitcoin drops again. Your collateral is now worth $12,500.
LTV Calculation: $10,000 / $12,500 = 80%
Action: Final Call. This is the last stop before automation kicks in.
Stage 4: The Flash Crash (Auto-Liquidation)
Bitcoin continues to drop. Your collateral value is now worth $11,765.
LTV Calculation: $10,000 / $11,765 = 85%
Action: Partial Auto-Liquidation Triggered.
Stage 5: The Reset to 65% LTV
As per the policy, the system sells approximately 57% of your collateral to pay down your debt and save the remaining position.
- The Sale: The system sells 57% of your $11,765 BTC collateral ($6,706 worth of BTC sold).
- Debt Paydown: That $6,706 is applied directly to your $10,000 loan.
- New Loan Balance: Your debt is now only $3,294.
- Remaining Collateral: You still own $5,059 worth of BTC.
The Final Result:
How Partial Liquidation Works
Unlike "Full Liquidation" models that may wipe out a user's entire collateral position, Peoples Reserve utilizes a Partial Auto-Liquidation approach.
- The 57% Liquidation: Upon hitting the 85% threshold, the system automatically sells approximately 57% of your collateral.
- Target Recovery: This sale is specifically calculated to reduce your debt and return your LTV to a stable level of ≤ 65%.
- Residual Value: Any funds or Bitcoin remaining after the loan is stabilized and the necessary fees/costs are deducted remain available in your account.
The "No Cure Time" Policy
In the digital asset markets, volatility can be instantaneous. It is vital for BLOC borrowers to understand our policy regarding market speed:
- Instant Triggers: While warnings are designed to provide a buffer, a "flash crash" can move your LTV through all risk thresholds in minutes.
- No Guaranteed Window: There is no "24-hour grace period" once the 85% threshold is crossed. Liquidation is automated to ensure platform solvency and prevent debt from exceeding collateral value.
Risk Mitigation Strategies
- Maintain a Buffer: While the maximum LTV is 50%, many borrowers start at 20% or 30% LTV to provide a "volatility cushion."
- Monitor Loyalty Tiers: Remember that your Loyalty Level is determined by the ratio of your PRN Loyalty Tokens to your total Portfolio Balance. A drop in Loyalty Level may affect your interest rate.
- The BBLOC Alternative: For those who wish to avoid liquidation risk entirely, the Bitcoin Bond Line of Credit (BBLOC) is the recommended alternative, as it carries zero liquidation risk.