Bitcoin-backed lending is becoming a more established way for cryptocurrency holders to raise cash without selling their BTC. Borrowers pledge Bitcoin to a lender or lock it in a smart contract, then receive dollars or stablecoins worth only part of the collateral’s value.
That structure can preserve exposure to Bitcoin’s future price and, in many jurisdictions, avoid the immediate capital-gains consequences associated with a sale. But it also creates a direct risk: if Bitcoin falls sharply, the borrower may have to provide more collateral, repay part of the debt or see the pledged coins sold.
According to Decrypt, the sector has developed substantially since the failures of major lenders in 2022, although interest rates remain high and the central risk of Bitcoin volatility has not changed.
How the loans work
A Bitcoin-backed loan is a secured loan. The lender holds the BTC as collateral while the borrower receives financing in fiat currency, such as U.S. dollars, or in a stablecoin such as USDC. The Bitcoin is returned after the principal and interest have been paid.
Loan-to-value, or LTV, is the key measure. It compares the amount borrowed with the market value of the Bitcoin pledged. Typical LTVs range from about 30% to 70%, with many products starting at 50%. For example, a borrower pledging $100,000 of BTC at a 50% LTV could receive a $50,000 loan.
The initial gap between the loan and the collateral is intended to absorb price movements. If Bitcoin’s value drops, the LTV rises. Crossing a lender’s margin-call threshold may require the borrower to add BTC or repay part of the loan. A further decline can trigger liquidation, allowing the lender to sell some or all of the collateral to cover the debt. In decentralised-finance, or DeFi, systems, smart contracts can carry out that process automatically.
Centralised lenders, including Ledn, Strike, Unchained, Nexo and Coinbase, generally require identity checks and use a company or custodian to hold the Bitcoin. DeFi platforms such as Aave and Morpho use smart contracts; because Bitcoin does not natively operate on those networks, borrowers normally use wrapped BTC, a token backed one-for-one by Bitcoin held in custody.
Terms differ among products. Some loans have fixed 12-month periods and monthly interest payments. Others have no monthly instalments or fixed repayment deadline, with interest accumulating on the outstanding balance.
A market reshaped by the 2022 failures
The collapse of lenders including Celsius and BlockFi damaged confidence in crypto credit. The market has since returned in a more cautious form. Galaxy Research said centralised lending had more than tripled from its late-2023 low, while centralised lenders now hold more loans than DeFi protocols.
Risk controls have become a prominent selling point. Some providers state that they do not rehypothecate customer collateral, meaning they do not lend the deposited Bitcoin to another party to seek additional returns. Rehypothecation was a major factor in the losses suffered by customers of failed lenders in 2022.
Some firms use shared-control custody. Unchained, for example, places collateral in a 2-of-3 multisignature vault, with keys held by the borrower, the company and an independent key agent. No single participant can move the coins alone.
Traditional finance is also becoming involved. Ledn completed a $188 million Bitcoin-backed asset-backed securitisation in February 2026. S&P Global gave the $160 million senior tranche a preliminary BBB- rating, described by SVB as the first investment-grade rating for a Bitcoin-collateralised lending portfolio. Galaxy put total crypto-backed loan volume at $56.16 billion in the second quarter of 2026, down 16.8% from the previous quarter as borrowers reduced leverage.
Coinbase has said it has originated more than $1 billion in Bitcoin-backed loans. Other products include Strike loans for individuals and businesses in selected U.S. states, Coinbase loans using the Morpho protocol, and Aven’s Bitcoin-backed Visa credit line, launched in April 2026 with limits of up to $1 million. Nexo offers credit lines against Bitcoin and more than 100 other assets, mainly to non-U.S. users.
Rates, fees and the risks borrowers face
Published borrowing costs vary by provider, loan size and LTV. As of October 2026, Coinbase rates started at about 5.8%. SALT advertised annual percentage rates from 7.49% to 10.5%, while Ledn quoted rates from 11.49% for loans below $250,000 to 9.25% for loans of $2 million or more. Strike listed rates of 10.5% to 13% for loans with monthly interest payments, with an additional percentage point when interest is paid at maturity. Unchained quoted a 12% interest rate, equivalent to a 14.18% APR.
DeFi rates move with supply and demand. Lower LTVs and larger loans generally receive better rates, but origination charges, prepayment penalties and liquidation fees can increase the effective cost beyond the headline rate.
The most important risk remains collateral volatility. A borrower who takes too much debt may be forced to sell Bitcoin during a falling market. DeFi users also face smart-contract, custody and infrastructure risks. Following an attack that drained $291 million from infrastructure linked to Kelp DAO in April 2026, users of Aave reportedly struggled to withdraw funds as $6.2 billion flowed out.
Moneyiar market picture
Moneyiar data at 23:29 on October 22, 2026, showed Bitcoin at $81,247.10, down 3.59% over 24 hours and 1.08% over seven days. The data also showed Stable at $0.02556, down 2.65% in 24 hours and 6.31% over seven days; Plasma at $0.07542, down 8.18% and 11.77%, respectively; and WINkLink at $0.00006031, up 2.41% over 24 hours and 8.52% over seven days.
These movements illustrate why LTV monitoring matters: changes in the value of pledged crypto can quickly alter a loan’s collateral cushion. The lending model may increasingly resemble conventional secured finance, but its exposure to a continuously trading and highly volatile asset remains central to the product.
