> For the complete documentation index, see [llms.txt](https://docs.bitvault.finance/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.bitvault.finance/welcome-to-bitvault/borrowing-and-liquidations.md).

# Borrowing & Liquidations

BitVault employs a **permissioned, capital-efficient borrowing model** designed to support institutional-grade stability while mitigating systemic risk. Although BitVault has **acquired a license for the battle-tested decentralized collateralized debt protocol Liquity V2** for potential future use, bvUSD is not currently minted using Liquity V2. Instead, BitVault operates a permissioned architecture that prioritizes compliance, predictable liquidity, and Bitcoin-backed transparency.

Currently, **bvUSD is a Bitcoin-backed, USD-pegged stablecoin** issued directly by BitVault. Anyone can also mint bvUSD with **USDC** or **USDT**. Institutional users may borrow bvUSD at a fixed 50% Loan-to-Value (LTV) ratio against BTC, wrapped BTC (e.g., WBTC, tBTC), or Bitcoin Liquid Staking Tokens (LSTs), ensuring that each bvUSD in circulation is overcollateralized with Bitcoin-linked assets.

This permissioned approach allows BitVault to reduce risk during the rollout of its Bitcoin-backed credit layer while still providing institutional-grade yield to both BTC liquidity providers and sbvUSD holders.

<figure><img src="/files/17D42FlzHDQctBs6YKZn" alt=""><figcaption><p>Borrow against your Bitcoin here: <a href="https://app.bitvault.finance/">https://app.bitvault.finance/</a></p></figcaption></figure>

***

## 🔹Institutional Borrowing

Instead of deploying an open collateralized debt protocol, BitVault manages a curated pool of institutional borrowers who hold BTC or BTC-wrapper collateral under qualified custody. Borrowing terms are established off-chain through institutional agreements and mirrored on-chain for transparency and auditability.

**Key Parameters**

* **Loan-to-Value (LTV):** 50% (fixed)
* **Collateral Types:** BTC, WBTC, bgBTC, tBTC & Bitcoin LSTs
* **Borrower Eligibility:** Whitelisted institutional counterparties
* **Redemptions:** Processed directly through BitVault with 1:1 USD redemption parity

This model ensures a 2:1 BTC-backed reserve ratio for every bvUSD issued, guaranteeing solvency even under extreme market conditions.

***

## 🔹Liquidations

Because borrowing is currently permissioned and collateral is maintained under qualified custody, liquidations are not automatically executed on-chain. Instead, they are institutionally triggered when a borrower’s LTV exceeds predefined thresholds (typically above 75%).

**Liquidation Process**

1. **Automated Monitoring:** BitVault continuously monitors collateral coverage through oracles and custodial attestations.
2. **Margin Call:** Borrowers receive an institutional notice to restore LTV to compliant levels.
3. **Collateral Recovery:** If unaddressed, BitVault may liquidate collateral under pre-approved agreements with custodians, ensuring orderly and transparent resolution.

This risk-controlled liquidation design minimizes volatility, prevents predatory liquidations, and strengthens bvUSD’s peg stability.

***

## 🔹Future Evolution

BitVault plans to integrate Liquity V2’s decentralized liquidation and redemption mechanisms in a later phase—once on-chain collateral management can be fully decentralized without compromising institutional standards. Until then, BitVault will operate under a semi-permissioned model that combines off-chain custody verification, automated monitoring, and on-chain transparency.

This architecture provides a measured path toward full decentralization, ensuring that bvUSD remains secure, scalable, and sustainable from the outset.