> For the complete documentation index, see [llms.txt](https://docs-personal.isle.finance/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs-personal.isle.finance/how-isle-personal-works/how-collateral-backed-credit-works.md).

# How Collateral-Backed Credit Works

Collateral-backed credit is a lending model where borrowers pledge assets worth more than the amount they wish to borrow. This over-collateralization protects lenders from default risk while allowing borrowers to access liquidity without selling their holdings.

## Core Concept

In traditional lending, your creditworthiness is evaluated based on income, credit history, and other factors. In collateral-backed lending, the equation is simpler:

$$
\text{Credit Limit} = \text{Collateral Value} \times \text{Loan-to-Value Ratio (LTV)}
$$

For example, if you deposit $10,000 worth of wstETH and the protocol allows 80% LTV:

$$
\text{Credit Limit} = $10,000 \times 0.80 = $8,000
$$

You can borrow up to $8,000 against your $10,000 collateral.

## Loan-to-Value (LTV) Thresholds

Isle Personal uses three LTV thresholds to manage risk progressively:

| Threshold                 | Purpose                                           |
| ------------------------- | ------------------------------------------------- |
| **Credit Threshold**      | Maximum LTV at which you can borrow               |
| **Deleverage Threshold**  | LTV at which partial liquidation becomes possible |
| **Liquidation Threshold** | LTV at which full liquidation is triggered        |

These thresholds follow a strict ordering:

$$
\text{Credit} \leq \text{Deleverage} \leq \text{Liquidation} \leq 100%
$$

<details>

<summary>Example</summary>

Let's say you have $10,000 in collateral and the following thresholds:

* Credit Threshold: 80%
* Deleverage Threshold: 85%
* Liquidation Threshold: 90%

| Borrowed | LTV | Status                                          |
| -------- | --- | ----------------------------------------------- |
| $7,000   | 70% | Healthy — can borrow more                       |
| $8,000   | 80% | At limit — cannot borrow more                   |
| $8,500   | 85% | Deleverageable — subject to partial liquidation |
| $9,000   | 90% | Liquidatable — subject to full liquidation      |

</details>

### Supported Collateral

Isle Personal currently supports:

* **wstETH** — Wrapped staked ETH, a yield-bearing Ethereum staking derivative
* **XAUT** — Tether Gold, a token backed by physical gold reserves


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