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 Safeguard Tiers
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.
| 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 collateral to protect the loan position. |
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% Execution: 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 levels 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 Tier is based on total portfolio value. A price drop may affect both your LTV and your interest rate simultaneously.
- 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.