Crypto Loans Explained: How Lending Against Digital Assets Works

How Crypto Loans Actually Work

A crypto loan lets you borrow money by pledging digital assets like altcoins, memecoins and others as collateral, rather than selling them outright. You keep ownership of the asset. You get cash or stablecoins to use however you need. And if the asset’s price rises while your loan is outstanding, that gain still belongs to you.

A borrower deposits crypto, like Bitcoin or Ethereum, into a lending platform or a bank’s custody system. The lender values that collateral and offers a loan sized below its full worth, the gap between the two is what protects the lender if the market drops. Once approved, funds land in the borrower’s account, often within hours rather than the days a traditional loan application takes. Interest accrues over the loan term, and the collateral stays locked until the balance is repaid.

Why Would Someone Get a Crypto Loan Instead of Just Selling?

Taxes are one reason. In the US, selling crypto that’s gained value triggers a capital gains tax, owed on the profit between what you paid and what you sold it for. Borrowing against that same crypto doesn’t count as a sale, so no capital gains tax applies, the tax rules that make this appealing vary by country, so it’s worth checking local rules before treating it as a given.while borrowing against it doesn’t. Someone convinced their holdings will keep climbing might also prefer to keep that exposure rather than cash out and potentially miss further gains. A business holding crypto reserves might need operating cash without liquidating a long-term position.

Collateralized vs. No-Collateral Crypto Loans

Collateralized loans are the version covered so far, deposit crypto, borrow against it, get the deposit back once the balance is repaid. That structure covers most of what people mean when they search for crypto loans, and it’s the model Wells Fargo and Coinbase both built their products around.

No-collateral loans work on a different premise entirely, and the phrase gets used two different ways online, which causes real confusion.

One version is a genuine unsecured loan, based on credit history or reputation rather than a deposit, still uncommon in crypto because there’s no standardized credit system across wallets the way there is for banks.

The other, more common version is a flash loan, a DeFi mechanism where a large sum gets borrowed and repaid within a single blockchain transaction, often used for arbitrage between exchanges. If the loan isn’t repaid before the transaction finishes, the entire transaction reverses as if it never happened. Flash loans solve a completely different problem than the one this article is about, and they’re not something an individual borrower uses to access cash for a few weeks.

What Happens If Your Collateral Loses Value

Collateral requirements exist because crypto prices move fast, and a lender needs a buffer before a loan turns into a loss. Most platforms set that buffer using a loan-to-value ratio, commonly requiring collateral worth 130% to 150% of the amount borrowed.

That buffer shrinks as the collateral’s price drops. Once its value falls close to the loan amount, most platforms issue a margin call, a warning to add more collateral or repay part of the loan before things get worse. Ignore that warning, or watch the price keep falling, and liquidation follows. The platform sells enough of the collateral to cover the loan, automatically, without a phone call or a chance to negotiate. Depending on how volatile the market is that day, this can happen within minutes of the price crossing the threshold.

This is the actual risk sitting underneath every crypto loan, the simple fact that the collateral backing the loan can lose value faster than a person notices. A loan taken out during a calm market can look completely different a week later if prices move hard in the wrong direction. Anyone borrowing against crypto should know their platform’s liquidation threshold before signing up.

Where Crypto Loans Are Actually Used Today

Figure and SALT were among the first platforms built specifically around crypto-backed lending, letting individual holders borrow against Bitcoin or Ethereum without going through a bank. Both are centralized finance (CeFi) platforms, meaning a company holds the collateral and manages the loan directly, similar in structure to a traditional lender, just built for crypto. Both have operated through multiple market cycles at this point, including the sharp downturns that tested how well their liquidation systems actually worked under pressure.

Wells Fargo’s institutional program CeFi too, takes a more traditional shape. Clients can pledge Bitcoin or spot Bitcoin ETFs directly, then borrow against that position through the same kind of private banking relationship they’d use for any other secured line of credit. The bank manages nearly $2 trillion in assets, and its willingness to accept Bitcoin as collateral signals something notable, crypto is being treated as a legitimate asset class inside a regulated bank.

Institutional lending has kept expanding on the crypto-native side too. FalconX and Ethena opened a $1 billion secured lending facility in August 2026, letting institutional borrowers access overcollateralized loans backed by assets behind Ethena’s USDe stablecoin, with FalconX handling origination and servicing while qualified custodians hold the collateral. It’s another example of CeFi structure, a company managing the loan directly, just applied to stablecoin-backed reserves instead of Bitcoin. We covered this alongside a few other notable moves in our most recent weekly crypto digest.

Coinbase and Better’s mortgage product (also runs through CeFi custody rather than a decentralized protocol) pushes the concept somewhere new entirely. Instead of a straightforward loan, a borrower gets two: a standard Fannie Mae mortgage on the actual home itself, and a separate loan secured by pledged Bitcoin that covers the cash down payment. Bitcoin sits in custody with Better until the down payment loan is repaid, and the whole structure still qualifies as a conforming mortgage backed by Fannie Mae, the same government-sponsored framework behind most conventional home loans in the U.S.

Decentralized finance (DeFi) lending works differently, with no company holding custody at all. Protocols like Aave and Nexo run lending through smart contracts instead, collateral gets locked directly on-chain, and the same code handles approval, interest, and liquidation without a human institution in the middle. It’s a meaningfully different trust model, one built around code rather than a company’s balance sheet, and it’s where flash loans and most no-collateral experimentation actually happen.

What Crypto Loans Mean for Businesses

A crypto loan is a feature businesses are starting to expect from the platforms they use, and one crypto company can build directly into what they already offer.

A wallet or exchange that lets users borrow against their holdings gives people a reason to keep assets on that platform instead of moving them elsewhere. It also opens a real revenue line through interest, something few crypto products have outside of trading fees. The infrastructure behind this no longer needs to be built entirely from scratch, collateral management, liquidation logic, and loan servicing are problems that have already been solved in production.