What Are Crypto Loans? How They Work, Costs and Risks (2026)

A crypto loan is a secured loan in which you pledge cryptocurrency as collateral and receive funds in return. The funds are usually stablecoins or fiat currency, though some platforms lend other crypto assets. You keep ownership of the collateral in the sense that it is returned when you repay, but you cannot spend or move it while it is locked.

People use these loans to get cash or buying power without selling their holdings. That can matter if they expect the asset to rise, want to avoid triggering a sale, or need liquidity for a short period.

The key difference from a bank loan is the basis of lending. Banks assess income and credit history. Crypto lenders mostly assess the collateral. If the collateral's value stays high enough, the loan is safe for the lender, so approval is quick and often automated.

The key difference from simply selling is the obligation. You owe the debt plus interest, and if your collateral loses enough value, the lender can sell it for you. Crypto loans are also called crypto-backed loans, collateralized crypto loans or crypto lending, though "crypto lending" more broadly covers both sides: the person who supplies assets to earn interest and the person who borrows.

Crypto loans are offered by centralized exchanges, specialist lenders and decentralized finance (DeFi) protocols. Each works a little differently, which the next sections cover.

Most crypto loans follow the same sequence, whichever platform you use.

1. Choose collateral and a loan asset. You pick the crypto you will pledge, such as BTC or ETH, and what you want to borrow, usually a stablecoin.
2. Deposit the collateral. On a centralized platform you transfer it to the provider. On a DeFi protocol you deposit it into a smart contract from your own wallet.
3. Borrow up to a limit. The platform lets you draw a share of the collateral's value. That share is the loan-to-value (LTV) ratio.
4. Pay interest. Interest may accrue continuously, be charged at a fixed rate, or float with market demand. Some loans have no set repayment schedule, while others have a fixed term.
5. Monitor the position. Price moves change your LTV. If it climbs too high, you must add collateral or repay part of the debt.
6. Repay and withdraw. Once you repay the principal and interest, the collateral is released.

Because crypto loans are over-collateralized, you pledge more value than you borrow. This protects the lender from price swings, since the collateral can be sold quickly if needed. A few products offer undercollateralized or unsecured credit, but these rely on credit assessment, underwriters or other safeguards and are less common.

Crypto loans come in three main forms. The right choice depends on how much you trust companies versus code, and on what is legally available where you live.

Type	Who holds collateral	Typical examples	Main risk
Centralized lender or exchange	The company	Exchange loan desks, specialist lenders	Counterparty risk, withdrawal limits, insolvency
DeFi money market	Smart contract	Dolomite, Save	Smart-contract bugs, oracle failures, liquidations
Specialized or credit-based	Varies	40 Acres, Cap	Product-specific design, newer and less tested

Centralized loans are the simplest to use. You sign up, complete identity checks, deposit collateral and borrow. Support is available, but you rely on the company's solvency and policies. Several exchanges, including OKX, Bitget and Gate, offer borrowing or margin features. Availability varies by region.

DeFi loans are permissionless and transparent. Rules are written in code, rates change with supply and demand, and you stay in control of your wallet. Liquidations are automatic. You are responsible for your own security.

Specialized designs exist as well. For example, 40 Acres offers loans against veNFTs that are described as self-repaying and non-liquidatable, and Cap offers credit backed by underwriters. These products have different mechanics and risk profiles from standard money markets, so read how each one works before using it.

Two numbers define the safety of a crypto loan: the loan-to-value ratio and the liquidation threshold.

LTV is the debt divided by the collateral's value. The liquidation threshold is the LTV at which the lender can sell your collateral. Platforms set both per asset, based on how volatile and liquid it is.

Here is a hypothetical illustration with invented figures, not a quote from any provider. You pledge ETH worth $10,000 and borrow $4,000 in stablecoins. Your LTV is 40%. Suppose the liquidation threshold is 80%. Liquidation would begin when your collateral falls to $5,000, since $4,000 is 80% of $5,000. That is a 50% drop in the collateral's price.

Borrowing more shrinks that cushion. At an LTV of 70% with the same threshold, a drop of only around 12.5% would be enough.

What liquidation involves:

• The platform sells part or all of your collateral to cover the debt.
• A penalty or fee is often added.
• Sales may happen during fast, thin markets, which can make the outcome worse.
• In some cases, automated systems act within minutes, so you may not get time to react.

A margin call, common on centralized platforms, is a warning asking you to add collateral or repay. DeFi usually offers no warning beyond what you monitor yourself.

The interest rate is only one part of what a crypto loan costs. Check each of these before borrowing.

• Interest rate. It may be fixed or variable. In DeFi money markets, rates usually shift with supply and demand and can change in hours. Advertised "from" rates apply to the best case, such as the lowest LTV or the largest collateral.
• Origination or service fees. Some providers charge a flat fee on opening the loan.
• Liquidation penalties. These apply if your position is closed out.
• Network and transaction fees. Moving collateral and repaying on a blockchain involves gas or withdrawal costs.
• Opportunity cost. If the collateral would have been staked or earning yield elsewhere, locking it may cost you that income, though some platforms let collateral keep earning.
• Price risk on repayment. If you borrow a stablecoin against volatile crypto, the debt stays stable while your collateral can change in value. If you borrow a volatile asset, the debt itself can grow.

Because rates, loan limits and supported assets change often, check the provider's live rate page or the protocol's app instead of relying on a number from an article. Compare the effective cost across a realistic loan period, not just the headline rate.

A crypto loan can cause losses that exceed the interest paid. The main risks are:

• Liquidation risk. A sharp price fall can wipe out your collateral quickly, and the lender will sell it regardless of your plans.
• Counterparty risk. With a centralized lender, your collateral is in the company's hands. If it becomes insolvent, freezes withdrawals or reuses collateral in ways you did not expect, you may not recover your assets. Past failures of crypto lenders are a reminder of this.
• Smart-contract risk. DeFi protocols can have bugs. Audits reduce this risk but do not eliminate it.
• Oracle and market risk. DeFi platforms rely on price feeds. Faulty or manipulated feeds can trigger wrongful liquidations or bad debt.
• Rate risk. Variable rates can climb when demand for borrowing rises.
• Leverage loops. Borrowing stablecoins to buy more of the same collateral multiplies both gains and losses and makes liquidation far more likely.
• Operational risk. Phishing, malicious approvals and wallet compromise can drain a DeFi position. Use a hardware wallet where possible, check contract addresses, and revoke approvals you no longer need.
• Regulatory risk. Rules on crypto lending change, and a provider may restrict or end service in your region.

A simple defense is to borrow far less than the maximum, keep spare funds to add collateral, and never put in crypto you cannot afford to lose.

Tax and legal treatment vary by country, so treat this section as a list of questions rather than advice.

Tax questions to ask:

• Does pledging collateral count as a disposal, or does ownership stay with you?
• Is the loan itself taxable income? In many systems, borrowed funds are not income, but this depends on the jurisdiction and structure.
• Does a liquidation count as a sale, and how is the gain or loss calculated?
• Is the interest you pay deductible, and under what conditions?
• How should you keep records of deposits, borrowings, repayments and liquidations?

Keep a complete transaction history, including wallet addresses and timestamps, since DeFi activity is not summarized for you the way a bank statement would be.

Legal and regulatory points:

• Some countries restrict or license crypto lending, and providers may not serve every region.
• Centralized platforms generally require identity verification (KYC) and may ask about the source of funds. Follow these checks honestly and do not try to get around location or identity requirements.
• Check whether the provider is registered or authorized where you live and what protections apply if it fails. Deposits with crypto firms are generally not covered the way bank deposits are.

If the amounts are significant, a qualified tax professional who understands crypto is worth consulting before you borrow.

Run through these questions before you pledge anything.

1. Why am I borrowing? A clear purpose, such as short-term liquidity, is safer than speculation.
2. How much cushion do I have? Work out the price at which liquidation would start and ask whether you could ride out a drop that large.
3. Who holds my collateral? Understand whether you are trusting a company, a smart contract or both.
4. What are the full costs? Include interest, fees, gas and liquidation penalties.
5. What are the terms? Check whether the loan has a fixed term, whether rates are variable, and whether the provider can change the rules or call the loan.
6. Is the provider credible? Look for audits, a track record, transparent reserves or risk reporting, and clear regulatory status. Risk managers such as Gauntlet and Steakhouse Financial curate parameters for some lending vaults, which is useful to know when you assess a protocol, though it does not remove risk.
7. Can I repay easily? Know how repayment and withdrawal work before you borrow.
8. Am I legally able to use it? Confirm that the service is available and lawful where you live.

If you are comparing options, start with a small test loan, keep a low LTV, and set price alerts. Crypto loans are financial products with real risk of loss, and they are not suitable for everyone.