How to Borrow Against Crypto: Assets, Costs and Risks

To borrow against crypto, identify the asset you can pledge, the currency you need and how you will repay. A native-Bitcoin holder funding a bank invoice is evaluating a different route from someone seeking stablecoins for an on-chain transaction. This guide walks through both the practical steps and the trade-offs.

Explore borrowing against native Bitcoin with Ledn →

TL;DR: What You’ll Learn in This Guide

This guide provides a clear overview of how to borrow against cryptocurrency, including:

• The basics of crypto-backed loans and how they differ from loans to purchase crypto.
• A step-by-step explanation of the borrowing process, from choosing a platform to receiving funds.
• The different types of crypto loans, including centralised, decentralised, margin lending, and stablecoin loans.
• Key advantages, such as retaining your crypto, avoiding credit checks, and potential tax benefits.
• Risks, including market volatility, margin calls, and platform security concerns.
• Alternatives to borrowing, such as selling crypto, staking, or using traditional loans.

What is a Crypto Loan?

The phrase crypto loan covers different arrangements. Separate the collateral from the use of proceeds: a loan secured by crypto can also be used to purchase more crypto.

1. Crypto-Backed Loans

You pledge your cryptocurrency as collateral to secure a loan, usually disbursed in fiat currency or stablecoins.  

2. Loans to Purchase Crypto

You borrow fiat money specifically to buy cryptocurrency. 

This guide focuses on crypto-backed loans, how they function and the key steps to get started.

Read more: What are Bitcoin Loans? And How Do They Work?

What is a Crypto-Backed Loan?

A crypto-backed loan allows you to borrow money or stablecoins by using your cryptocurrency as collateral. This means your crypto assets, such as Bitcoin, Ethereum, or other tokens, secure the loan. Some platforms even accept NFTs as collateral, though this is uncommon.

The loaned funds can be issued in cryptocurrency or fiat currency, depending on the platform and your preferences.  

How do Crypto Loans Work?

A crypto-backed loan uses eligible cryptocurrency as security for borrowed funds. Review the agreement and repayment obligations before transferring collateral, not after. Once approved and funded, you manage the debt and collateral for the life of the loan.

While the general process is consistent across platforms, the specifics can vary. 

Key factors to consider include:

Repayment Terms

The time allowed to repay and the applicable interest rates.  

Service Type

Centralized and decentralized lending providers operate differently:  

Centralized Providers

Centralised providers combine an account and agreement with verification, custody and funding. They may offer bank or stablecoin payouts and human support. Approval and settlement time depend on the provider, payment route and required checks.

Decentralized Providers

DeFi protocols manage on-chain positions through smart contracts. Transactions need network confirmation, markets need available liquidity, and interfaces may impose verification or access restrictions. Some interfaces provide customer support, but support generally cannot reverse a completed liquidation.

How Do You Borrow Against Crypto?

Borrowing crypto involves using your cryptocurrency as collateral to secure a loan. Most lending platforms allow this, even if you're borrowing in cryptocurrency. Here's a simplified guide to help you through the process.

Read more: Understanding Crypto Loans: The Ultimate Guide

How to Borrow Crypto in 5 Steps?

Work through the five steps below before committing collateral.

1. Select a Borrowing Platform

The first step is selecting a lending provider that meets your needs. This can require research to compare fees, loan-to-value (LTV) ratios, interest rates, and security. Picking the right platform simplifies the rest of the process.

Read more: 15 Best Crypto Loan Platforms 

Work backwards from the payment you need to make

Suppose you need dollars for an invoice. A stablecoin loan may require an additional conversion and bank withdrawal before the supplier can be paid. If the invoice is payable in a supported token instead, those steps may not be needed. Confirm the recipient's requirements before comparing rates.

For each candidate, write down the starting asset, collateral form, borrowed currency, receiving account and repayment asset. Any conversion belongs in the cost and risk assessment. The existence of a token designed to track BTC does not make it equivalent to native Bitcoin in every agreement or wallet.

Ledn may be relevant where eligible native BTC and an available fiat or stablecoin payout match that route. If you want to pledge another asset, verify an alternative that accepts it rather than assuming Ledn offers every type of crypto-backed loan.

2. Choose your Collateral

Select the cryptocurrency you’ll use as collateral. Popular options include Bitcoin, Ethereum, USDC, and USDT, but supported assets vary by provider. Some platforms let you combine multiple currencies as collateral. 

3. Decide How Much to Borrow

Determine the loan amount based on the LTV ratio offered by the provider. Most crypto loans are over-collateralized, meaning the loan amount will be less than the collateral you provide.

For example, if you use 1 BTC as collateral and the LTV is 50%, you can borrow the equivalent of 0.5 BTC in fiat or stablecoins.

A higher LTV increases borrowing capacity but leaves less buffer before liquidation. It does not, by itself, determine the interest rate. For example, a $15,000 loan against $30,000 of collateral begins at 50%; if collateral falls to $20,000, it reaches 75%, before interest and fees. Compare a smaller loan with your available top-up funds. Explore current rates and collateral requirements.

4. Verify your account or connect the right wallet

The connection method depends on the product. Check the official address and network; never share a recovery phrase or private key with a lender or support agent.

• Decentralised Platforms: Use your wallet to sign into the network and interact with smart contracts.
• Centralised platforms: complete identity checks and follow the loan's deposit instructions. Simply sharing a wallet public key is not the general approval or collateral-transfer process.

5. Provide Collateral and Receive Funds

Once you’ve reviewed the terms and are satisfied with the LTV and interest rates, transfer your collateral.

Related Content: CeFi vs DeFi - Key Differences Explained

Different Types of Crypto Loans

Crypto loans come in a few forms, each designed to meet different needs and preferences. Here's an overview of the most common options.

Centralized Crypto Loans

Centralised crypto loans are managed by organisations rather than automated systems. These loans can be disbursed in fiat or cryptocurrency and often support a wide range of assets, making them ideal for users seeking customer support, fiat integration, or flexible terms.

Decentralized Crypto Loans

Decentralised crypto loans use blockchain smart contracts and market-specific collateral rules. They may use tokens such as wrapped BTC rather than native Bitcoin. That creates issuer, redemption and token-contract dependencies as well as the lending protocol's risks. Pseudonymous on-chain access does not guarantee anonymous use of every interface.

Margin Lending

Margin lending is a specialised option for traders who want to borrow funds for investment purposes. Often integrated into exchanges, these loans allow users to leverage their holdings for trading activities, making them most suitable for experienced investors.

Stablecoin Lending

Stablecoins are designed to track a reference currency. Borrowing them can provide dollar-linked proceeds, but they introduce issuer, reserve, redemption and depegging risks. Stablecoin debt secured by volatile BTC still carries BTC liquidation risk, and spending through a bank may require conversion and withdrawal.

Peer-to-Peer Crypto Loans

Peer-to-peer loans match a borrower and funding provider through an agreed contract or platform. Depending on the design, collateral may be managed with smart contracts or Bitcoin multisignature arrangements. Compare key control, dispute procedures, funding availability and repayment rights; the P2P label alone does not establish safety.

Related content: How Crypto P2P Lending Works

Crypto-Backed Fiat Loans

Crypto-backed fiat loans deliver bank currency against pledged digital assets. This can avoid a separate stablecoin cash-out step when you need dollars for a supplier or property transaction. Confirm the receiving account, currency and transfer deadlines; access to a blockchain does not make banking operate continuously.

Pros and Cons of Crypto Loans

Let's look at the pros and cons of using crypto loans. This will also help you understand why people borrow crypto, and what to watch out for.

Pros of Crypto Loans

Retain price exposure

Borrowing lets you retain exposure to potential appreciation rather than selling at the outset. The pledged asset remains restricted and can be sold under liquidation or repayment provisions, so retaining exposure is different from unrestricted ownership and access.

Potential Tax Benefits

An initial loan may be treated differently from a sale, but tax treatment depends on jurisdiction and transaction structure. Repayment using collateral or liquidation can create a taxable disposal. Review the full planned sequence with a qualified adviser.

Easier Access Compared to Traditional Loans

Collateral-based underwriting can be relevant when wealth held in Bitcoin is not fully reflected by income or traditional credit scores. You still need eligible collateral, verification, a permitted location and a realistic repayment source.

Collateral-based underwriting

Ledn's Bitcoin-backed product does not use a traditional credit check. Other providers' checking and reporting practices vary, so do not assume every crypto loan leaves credit records unaffected.

Simpler Approval Process

Loan terms are typically determined by the loan-to-value (LTV) ratio and the value of your collateral, not your financial history or creditworthiness.

Cons of Crypto Loans

Risk of Insolvency

A number of high-profile crypto lending platforms have collapsed, putting customer collateral at risk. Choosing a reliable provider with a strong track record and transparent practices will mitigate this risk.

Restrictions on releasing appreciated collateral

A rising asset price does not automatically release collateral. Ledn's eligibility rules can permit redemption when LTV falls below 30%, to a 40% target, with loan-age, maturity, timing and amount limits. Understand the exit before assuming the same BTC will be available for another transaction.

Market Volatility Risks

If the value of your collateral drops significantly, you may face a margin call, requiring you to add more collateral or risk liquidation of your assets.

Lack of Consumer Protections

Consumer protections and enforcement rights depend on the provider, contract and jurisdiction. Do not assume that bank-deposit insurance or a familiar lender's protections extend to a crypto loan or DeFi position.

Dependence on Platform Security

Both custodial services and DeFi arrangements have security dependencies. Examine account controls, custody permissions and counterparty exposure for a lender; examine contracts, oracles, interfaces and collateral tokens for DeFi. Neither label guarantees protection from losses.

Alternatives to Borrowing Against Your Crypto

Crypto lending isn’t suitable for everyone, so it’s worth exploring other options. 

Here are a few alternatives:

Selling Your Crypto

Liquidating your crypto assets and converting them to fiat is a straightforward option, especially if you’re not worried about missing out on potential future gains. Selling eliminates the stress of repayment and allows you to receive nearly the full value of your crypto (minus transaction fees).

Staking

For assets on proof-of-stake networks, staking can earn rewards for helping secure the network, subject to technical, price, slashing and withdrawal risks. Bitcoin itself does not natively use proof-of-stake. Staking produces uncertain income rather than a fixed lump-sum borrowing facility, so it is not a direct substitute for a bill due now.

Traditional Loans

Traditional credit includes unsecured personal loans and secured borrowing against property, vehicles or other assets. Underwriting may assess income, credit history and collateral. Compare the actual rate, repayment schedule, fees and default consequences with the crypto loan; a long-term amortising mortgage and a 12-month BTC-backed loan solve different cash-flow problems.

Credit Cards

Credit cards function as unsecured loans with set credit limits and interest rates. While they don’t require collateral, they rely on your credit score, which can suffer if payments aren’t made on time. They’re a quick and flexible alternative but come with higher interest rates than some other options.

Related content: The Differences Between Staking & Crypto Lending

Why Use Ledn for Crypto Loans

Ledn is relevant when you hold eligible native Bitcoin and want a USD-denominated loan with an available fiat or stablecoin payout. Its custody-use restrictions, defined term and loan-management tools are practical points to compare.

Flexible Loan Options

Ledn's typical initial LTV is 50%, so $100,000 of Bitcoin supports $50,000 of principal. The standard term is 12 months. The available payout route depends on the account and jurisdiction; check net usable proceeds and receiving-account requirements.

B2X combines borrowing against Bitcoin with purchasing additional BTC. Buying more Bitcoin is a core use case, but it increases leveraged exposure: gains and losses are magnified while debt remains payable.

Understand the current collateral model rather than relying on a historical product menu:

Ledn's current Bitcoin-backed product uses native BTC collateral. Review the specific quote and collateral agreement available to your account.

For Custodied Loans, collateral may be re-posted only to a trusted institutional USD funding partner or a Ledn-sponsored financing vehicle. It stays in verifiable custody, with ring-fencing or bankruptcy-remote structures. Neither Ledn nor those parties may lend it out to generate interest.

Read more about Ledn Custodied Loans here.

Repayment flexibility and a defined maturity

There are no required monthly payments and no early repayment penalty, but interest accrues daily and the principal remains due. Plan for the 12-month maturity rather than assuming repeated renewals. Funding requires approval, collateral receipt and settlement through the chosen payment route.

Security and Transparency

Ledn publishes monthly Open Book Reports and periodic Proof of Reserves attestations. Clients can check inclusion in covered balances. Review the scope and date: a point-in-time attestation is not a complete solvency audit or a guarantee of future performance.

Product documentation

Review Ledn's current rates and terms, the Custodied Loan model, Auto Top-Up and renewal process.

From 1 January 2027, accrued interest and fees must be cleared at maturity or mid-term refinancing. Eligible principal may renew when LTV is below 65% and other conditions are met. Available stablecoin balances may be applied, with minimum BTC sold to cover a shortfall and, where needed, reach 64% LTV. Do not assume renewal avoids a collateral sale.

Partial Loan Repayments

Ledn’s partial repayment feature allows you to make smaller repayments when convenient, without any prepayment penalties. This feature, combined with others like excess collateral redemption and Auto Top-Up, helps optimize your borrowing and holding strategy. Read more.

Global Accessibility

Availability depends on country, state or province, and some locations have minimum-principal or commercial-purpose conditions. Check eligibility for the actual borrower and intended use; do not infer access from Bitcoin's global availability.

FAQs

What are the risks of crypto loans?

The principal risks are collateral price declines, debt costs, inability to repay, custody or platform failure, and operational security. On-chain loans can add smart-contract, oracle and collateral-token dependencies. Reducing initial LTV adds price buffer, but does not make a repayment plan sustainable if the expected funds never arrive.

Do crypto loans affect your credit score?

Ledn does not use a traditional credit check for this product, but this is not a universal rule about every lender's credit reporting. Account verification and eligibility still apply, and collateral rather than credit history does not make the borrowing obligation disappear.

What happens if the crypto collateral drops in value?

Ledn notifies borrowers at 70% and 75% LTV. At 80%, liquidation is automatic and irreversible: collateral is sold to cover the outstanding balance and costs, with a 0.50% trade spread and remaining BTC returned. Auto Top-Up uses available Transaction Account BTC at 70% toward a 68% target where enabled, but requires funds and cannot guarantee protection during a rapid fall.

Are Crypto-Backed Loans Taxed?

The tax treatment of crypto-backed loans depends on your jurisdiction. In many countries, borrowing against crypto is not considered a taxable event, as you are not selling or realising gains on your assets. However, if your collateral is liquidated due to default or margin calls, it may trigger a taxable event, such as capital gains or losses. Consulting a tax professional familiar with cryptocurrency laws in your area is recommended.

Conclusion

Choose a product whose accepted collateral, usable proceeds and repayment structure fit the same job. Review Ledn’s Bitcoin-backed loan terms or follow the application guide. Compare a partial asset sale as well as borrowing before committing collateral.

This article is for general information, not financial, investment, tax or legal advice. Borrowing involves interest, fees and collateral liquidation risk. Eligibility and terms vary. Read Ledn’s Risk Disclosure Statement and Disclaimers.