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How do crypto loans work?

A collateralized crypto loan followed from the lender's first checks to the day the collateral comes back, with the loan-to-value arithmetic that governs everything in between.
By Crypto Loans HQ Published Last reviewed

How do crypto loans work? They are collateralized loans: you pledge bitcoin or ether to a lender and borrow US dollars or stablecoins against it, keeping your exposure to its price, which is different from an unsecured “crypto loan”, a DeFi flash loan or lending your crypto out for interest. The loan-to-value ratio sets how much you can borrow and when the lender can sell.

Key takeaways

  • The collateral carries the loan. The lender advances a fraction of the collateral's market value, the loan-to-value (LTV) ratio, and re-prices that collateral against a price feed every minute or so for the life of the loan.
  • Some lenders measure health the other way up. Unchained states its commercial loans in collateral-to-principal: 200% CTP is the same position as a 50% LTV, and a violation is issued below 150% CTP (September 2026).
  • Who holds the collateral matters as much as the rate. On 9 November 2023 the Celsius bankruptcy court held that collateral pledged by objecting retail borrowers, under terms that allowed rehypothecation, was property of the estate.
  • The lender runs identity and anti-money-laundering checks. Expect identity documents and, for companies and trusts, beneficial-ownership and source-of-funds evidence, before any collateral moves.
  • Borrowing and liquidation are treated differently for tax. In many jurisdictions taking a loan against an asset is not itself a disposal, but a liquidation is a sale, and a title transfer or certain lender structures can also be a disposal.

What a crypto loan is, and what it is not

On this site a crypto loan means one thing: a loan in US dollars or stablecoins, secured on bitcoin or ether that you own and pledge to the lender. The collateral is worth more than the loan. Ledn, Galaxy and Unchained all publish starting points equivalent to 50% LTV, which means collateral worth twice the loan (accessed September 2026).

Three other things share the name, and none of them is what this guide describes:

  • Unsecured “crypto loans”. Personal loans with crypto branding, or loans paid out in crypto, that rest on the borrower's credit rather than on pledged collateral. They are a different product with different risks.
  • DeFi flash loans. Aave's documentation describes flash loans as transactions that allow borrowing “as long as the borrowed amount (and a fee) is returned before the end of the transaction”, with no collateral supplied. They are a developer tool that opens and closes inside one blockchain transaction, not a way to raise dollars against a holding.
  • Lending your crypto out. Much of what is written about “crypto lending” means depositing crypto with a platform that lends it on and pays you interest. There you are the lender, and an unsecured creditor if the platform fails: on 4 January 2023 the Celsius bankruptcy court held that assets in its Earn accounts had become Celsius's property. This site does not cover lending crypto out.

The rest of this guide follows a collateralized loan against bitcoin or ether. For the loans themselves, see crypto-backed loans and bitcoin-backed loans.

The loan from start to finish

  1. Enquiry and fit

    The first questions are the asset, the amount, where you live or are incorporated, and what kind of borrower you are. Availability varies by place: Ledn states that availability “depends on country, state, or province”, and Xapo states that its lending is not available to residents of the United Kingdom or Australia (both accessed September 2026).

  2. Identity and anti-money-laundering checks

    The lender verifies who you are and, for a company or trust, who owns and controls it, before any collateral moves. This is the lender's process, set out under what lenders check below.

  3. Terms

    The lender sets the amount, the starting LTV, the margin-call and liquidation levels, the cure window, the interest structure, the term and the custody arrangement. Read the thresholds and the custody clause as closely as the rate: they decide what happens in a bad week.

  4. Collateral transfer

    You send the bitcoin or ether to the address the lender specifies: a custodian's segregated wallet, a lender-controlled wallet, or a multisig address in which you hold one key. Some structures convert the coin into a wrapped or tokenized version; Ledn's own comparison guide warns that wrapped assets add issuer and smart-contract dependencies.

  5. Funding

    Once the collateral is confirmed, the lender pays out. Ledn states that it pays proceeds in “USD, USDC or your local currency”, and Galaxy states that its line of credit can be drawn as USD or USDC (accessed September 2026).

  6. The life of the loan

    The lender re-prices the collateral continuously. Unchained uses the CME CF Bitcoin Real Time Index, which “updates every minute”; Arch uses a CoinMarketCap feed updated every 60 seconds. If LTV rises past a trigger you receive a margin call. If it falls far enough, some lenders release collateral: Ledn lets eligible clients redeem bitcoin when LTV falls below 30%, back to a 40% target.

  7. Repayment and return of the collateral

    You repay the principal and any interest outstanding, and the lender releases the collateral to a wallet you control. If the loan defaults, or a margin call goes uncured, the lender sells collateral to cover what you owe. Unchained, for example, liquidates “sufficient collateral to repay the unpaid loan balance, including fees”, and states that “any remaining collateral will be returned to you”.

Loan-to-value, worked through

Loan-to-value is the loan balance divided by the current market value of the collateral. Because the denominator is a market price, your LTV changes every time the feed updates, even if you do nothing.

Two things push it up: a fall in the collateral's price, and a rising balance where the lender adds accrued interest to what you owe. Morpho's documentation, for example, lists “debt increasing due to accrued interest” alongside a falling collateral value as a route to liquidation.

Unchained expresses the same ratio the other way up, as collateral-to-principal (CTP). Its 200% minimum CTP is a 50% LTV, and its 150% trigger is about 66.7% LTV (our arithmetic: LTV equals one divided by CTP).

Worked example

A US$1,000,000 loan against 20 BTC. At an illustrative bitcoin price of US$100,000, the collateral is worth US$2,000,000 and the LTV is 50%. If the price falls to US$80,000, the collateral is worth US$1,600,000 and the LTV is 62.5%. At US$71,429 the LTV reaches 70%, where Arch publishes a margin call and Ledn an alert. At US$62,500 it reaches 80%, where Ledn states that liquidation is automatic.

Prices are illustrative, not a forecast. Ranges lenders published as of September 2026; terms depend on the lender, the collateral and the borrower, and are set only by the lender.

The arithmetic generalizes. The price fall that takes a loan from its starting LTV to a trigger is one minus the starting LTV divided by the trigger. Starting at 50%, a 70% trigger is a 28.6% fall away and an 80% trigger a 37.5% fall; starting at 60%, the same triggers are 14.3% and 25% away. The guide to bitcoin loan margin calls works through the full table and the cure arithmetic.

How interest and repayment are structured

The interest structure changes how LTV behaves over time, so it belongs in the same conversation as the thresholds.

Interest and repayment structures lenders publish, September 2026
Structure How it works Published by (examples) Effect on LTV
Monthly interest, principal at the end Interest is paid monthly; the principal is due at maturity as a balloon. Unchained (every 30 days, 12-payment terms); Milo (balloon at maturity); Galaxy line of credit (monthly, open-term) The balance stays flat while interest is paid, so only the price moves LTV.
Interest accrues to repayment Interest builds up and is paid when the loan is repaid. Arch (not due until maturity); Ledn (accrues daily; from 1 January 2027, due in full at maturity or on a mid-term refinance) Where accrued interest counts toward the balance, LTV rises at a flat price.
Open-ended No fixed repayment schedule; repay when you choose. Xapo (no set payment schedule); Nexo credit line (“Open once, repay anytime”) Depends on how and when the lender charges interest.
Sources: each firm's published pages, accessed 19 September 2026. A description of what each firm publishes, not a comparison or recommendation; terms are set only by the lender.

Term matters as much as structure. Published terms run from 30 days (Xapo) through 12 months (Ledn, Unchained) to one, three and five years (SALT). At maturity you repay or refinance on the lender's terms at the time: Ledn, for example, requires LTV below 65% to renew and may sell bitcoin to bring it to 64%.

Custodial and non-custodial loans

In a custodial loan the lender, or a custodian it appoints, holds the private keys to your collateral for the life of the loan. What protects you then is the contract: whether the lender may pledge, lend or sell the coins (rehypothecation), whether they sit in a segregated account, and what happens to them if the lender fails.

In a multisig loan no single party holds enough keys to move the coins. Unchained's help center describes collateral held in “a 2-of-3 quorum” with keys held by “the Key Agent, Unchained, and the borrower”, so any movement needs two signatures and you can see the address on the blockchain. “Non-custodial” is a spectrum rather than a label: your one key cannot move the coins on its own either.

Custody is where the 2022 and 2023 lender failures did their damage. The guide to bitcoin loan rehypothecation and custody compares the models and lists the questions to ask a lender.

What lenders check before they lend

Lenders verify identity and run anti-money-laundering checks before collateral moves, and a lender that offers to skip them is a warning sign in itself. Expect these:

  • Identity. Government identification, proof of address, and screening against sanctions lists and for politically exposed persons.
  • Ownership and control, for companies and trusts. In the US, FinCEN's customer due diligence rule requires covered financial institutions to identify the beneficial owners of legal-entity customers: each person owning 25% or more, plus one person with significant control. Whether the rule binds a particular crypto lender depends on the lender's status; expect the same questions either way.
  • Source of funds and source of wealth. Where the coins came from and how the wealth was built. UK regulations require firms to establish both for politically exposed persons, and firms apply similar checks more widely on a risk basis.
  • The wallet the collateral comes from. In the EU, for transfers over EUR 1,000 to or from a self-hosted address, a crypto-asset service provider is expected to verify that its client owns or controls that address (Regulation (EU) 2023/1113, recital 39).
  • Purpose and borrower type. Ledn states that some locations may require “a minimum principal or confirmation of commercial purpose”, and Unchained's loans page offers commercial loans only. Whether a lender also reviews income or credit history varies by lender and product.

Crypto Loans HQ does not run these checks and does not make credit decisions. We qualify an enquiry against lenders' published criteria and introduce it; the lender verifies, decides and documents. How an introduction works sets out the stages, and who we work with sets out the working minimums. Firms named on this page are examples of published terms; how we are paid explains our compensation.

Risk

Risks to weigh before borrowing

  • Margin calls and forced liquidation. A falling bitcoin or ether price raises your LTV. Past the lender's trigger you must add collateral or repay within a window measured in hours (24 hours at Arch and Unchained, 48 hours in Figure's current FAQ); at the liquidation level the lender sells collateral, in some cases automatically.
  • Counterparty and custody risk. If the lender may rehypothecate your collateral, or ownership passes to it, a lender failure can leave you a creditor rather than an owner. Celsius, BlockFi and Genesis all filed for bankruptcy in 2022 and 2023; in Celsius, objecting retail borrowers' collateral was held to be property of the estate.
  • Tax on a liquidation. A forced sale of collateral is generally a taxable disposal, and the gain is yours even though the proceeds go to the lender. The IRS has published no guidance specific to crypto-backed loans.
  • Terms that change. Lenders revise their terms: Ledn requires accrued interest to be paid at maturity from 1 January 2027. The terms that bind you are the ones in the documents at signing and on renewal.

Each risk has its own guide: how bitcoin loan margin calls work, custody and rehypothecation, and whether crypto loans are taxable.

General information, not advice. This guide describes how collateralized crypto loans work in general terms and what named firms publish, as accessed in September 2026. It is not an offer to lend or to arrange a loan on particular terms, and it is not investment, legal or tax advice. Terms are set only by the lender. Take advice from a qualified tax adviser before borrowing against, or selling, a crypto asset. How we are paid.

How crypto loans work: questions

What is crypto lending?

The phrase has two meanings. On this site it means borrowing US dollars or stablecoins against bitcoin or ether that you pledge as collateral. It is also used for depositing crypto with a platform that lends it on and pays you interest, where you are the lender, and an unsecured creditor if the platform fails. This site covers only the first meaning.

How do you get a crypto loan?

You find a lender whose accepted assets, loan sizes, jurisdictions and custody terms fit, pass its identity and anti-money-laundering checks, agree the terms, send the collateral to the address it specifies, and receive US dollars or stablecoins. The lender sets every term and makes the credit decision. An introducer can match an enquiry to lenders whose published criteria fit.

How do you borrow against bitcoin without selling it?

You pledge the bitcoin as collateral for a loan instead of selling it. You keep the exposure to its price and owe the loan plus interest. If the bitcoin price falls far enough, the lender can sell some or all of the collateral, so the bitcoin stays yours only while the loan stays inside the lender's loan-to-value limits and you meet the payment terms.

How much can you borrow against bitcoin?

Lenders size the loan as a percentage of the collateral's market value, the loan-to-value ratio. In September 2026 Ledn, Galaxy and Unchained published starting points equivalent to 50%, meaning collateral worth twice the loan, and Xapo capped its loans at 40%. Terms depend on the lender, the collateral and the borrower, and are set only by the lender.

Related guides

Guide

Bitcoin loan margin calls

How far the price has to fall, what a cure costs in cash or collateral, and what a partial liquidation sells.

Read the guide →

Guide

Custody and rehypothecation

Who holds your collateral, what the contract lets them do with it, and what happened to Celsius borrowers.

Read the guide →

Guide

Borrow against bitcoin instead of selling

What a loan costs and risks compared with a sale, set out without tax-strategy framing.

Read the guide →

Primary sources

Where to go next

Holders weighing a loan of US$100,000 or more against bitcoin or ether can see how an enquiry is qualified and introduced to a lender on the process page.