Four scenarios — from a routine borrower to a portfolio-wide flash crash — showing how automated LTV monitoring, margin calls, and custodian-integrated liquidation workflows protect your institution's position.
Risk modeling and scenarios developed in collaboration with Zaria.
A plain-language summary of the inputs, triggers, and data sources behind the four walkthroughs above.
Every loan in these scenarios originates at a 50% loan-to-value ratio against Bitcoin collateral held with a qualified custodian. Rates range from 8.5% to 12.0% APR, consistent with current institutional Bitcoin-backed lending terms. Terms run 6 to 12 months. Interest accrues daily on the outstanding balance.
LTV is recalculated continuously as BTC prices move. A margin call is triggered when LTV crosses 65–70%, opening a 24–72 hour cure window during which the borrower can post additional collateral or partial principal. If LTV crosses 80–85%, the loan enters the liquidation workflow with no further cure window. All four thresholds — margin call, cure length, liquidation, and committee approval gates — are fully configurable per institution.
The Steady Borrower, Margin Call, and Flash Crash scenarios use illustrative price paths anchored to realistic historical ranges. The Cascading Liquidation scenario is built on the portfolio stress model developed by Zaria: actual BTC daily closes from Yahoo Finance for the period Oct 2025 – Mar 2026, with an intraday 28% flash-crash event modeled on Nov 15, 2025 (close $95,549, intraday low $68,795).
Single-loan scenarios assume the custodian executes at the prevailing market price. The Cascading Liquidation scenario models market impact explicitly: execution price is reduced by 0.5 × √(Q / ADV), where Q is cumulative BTC sold into the event and ADV is crash-day average daily volume. Slippage compounds across sequential liquidations, which is why the 11th fill in the cascade lands at 23.1% below its trigger price while the 1st fill lands at 5.7%.
These scenarios model LTV dynamics, margin call and liquidation workflows, custodian execution, and — in the cascade — simultaneous portfolio-level breaches with slippage. They do not model taxes, operational risk, fraud, regulatory capital treatment, or counterparty risk at the custodian. Borrower responsiveness is set per scenario rather than drawn from a distribution. Real-world outcomes will differ based on your institution's specific policies, custodian arrangements, and the market conditions at origination.
Methodology and risk scenarios were developed in collaboration with Zaria, who authored the two underlying stress tests: a 20-loan portfolio backtest against actual Yahoo Finance BTC-USD prices (Oct 2025 – Mar 2026), and a 15-loan cascading-liquidation simulation that layers the market-impact formula above onto the same price series. Both reports are available on request.
Disclaimer: These scenarios use illustrative figures based on historical Bitcoin price patterns, typical institutional lending parameters, and — for the Cascading Liquidation scenario — a standard market-impact model applied to actual Yahoo Finance BTC-USD prices. Actual LTV thresholds, margin call triggers, cure windows, and liquidation workflows are fully configurable by your institution. Past price movements do not guarantee future performance. This content is for educational purposes and does not constitute financial advice.
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