Question 1

What happens to my collateral when I repay a crypto-backed loan?

Accepted Answer

Your collateral is typically returned to you in full once you repay the loan principal and any accrued interest. The assets remain yours throughout the loan term. They are simply held by the lender as security.

Question 2

Can I get a cryptocurrency loan without putting up collateral?

Accepted Answer

Uncollateralized crypto loans exist but are rare. Uncollateralized loans typically require a strong credit history, institutional relationships, or participation in specific DeFi protocols with reputation-based systems. The vast majority of cryptocurrency lending requires overcollateralization.

Question 3

Are crypto-backed loans taxable in the United States?

Accepted Answer

Borrowing against digital assets generally does not trigger a taxable event because you are not selling the asset. However, interest payments and other factors may have tax implications. If your collateral is liquidated, that event could be treated as a sale and may trigger capital gains taxes. Consulting a tax professional for advice on your specific situation is worth considering.

Question 4

What types of cryptocurrency can I use as collateral for a loan?

Accepted Answer

Accepted collateral varies by platform, but Bitcoin and Ethereum are the most commonly accepted due to their liquidity and market capitalization. Some platforms, including Figure, also accept Solana. Other lenders may accept stablecoins and a wider range of altcoins, though terms may vary based on the asset's volatility.

Question 5

What is the difference between CeFi and DeFi crypto lending?

Accepted Answer

CeFi, or centralized finance, means a company runs the platform, holds or controls your assets, and acts as the intermediary, which gives you a familiar account-based experience but requires trusting that company to stay solvent. DeFi, or decentralized finance, replaces the company with smart contracts that hold collateral and enforce the rules automatically from your own wallet, which offers transparency and self-custody but is unforgiving: liquidation is automatic and irreversible, and a bug in the code is your risk. Neither model is universally safer; CeFi concentrates trust in a company and DeFi concentrates it in code.

Question 6

How much can I borrow against my crypto?

Accepted Answer

How much you can borrow depends on the value of the crypto you pledge as collateral and the platform's maximum loan-to-value (LTV) ratio, which measures your loan amount against the value of your collateral. Because digital asset prices are volatile, lenders keep this limit below 100%, so your loan stays overcollateralized. A higher LTV means less cushion before a price drop can trigger a margin call or force the sale of your collateral, so borrowing below the maximum leaves more room to absorb volatility. Available LTV limits and terms vary by platform and by the asset you pledge.

Question 7

Can I borrow against my crypto without selling it?

Accepted Answer

Yes. Borrowing against your crypto lets you access cash while keeping the asset. You pledge your crypto as collateral, receive a loan, and reclaim your collateral when you repay, so you keep your market exposure instead of selling and realizing a gain. Because you have not sold the asset, borrowing against crypto generally does not trigger a taxable event the way selling does, though tax treatment varies by individual circumstances; this is general information, not tax advice. The trade-off is that you take on a loan, and your collateral can be sold if its value falls far enough, so you can still lose your collateral even though you did not sell it upfront.

Question 8

What is a margin call, and what happens if my collateral drops in value?

Accepted Answer

A margin call is a lender's demand that you add collateral when the value of your pledged crypto falls and your loan-to-value ratio rises past a set threshold. Adding collateral or repaying part of the loan brings your ratio back into range. If you do not meet a margin call, the lender can liquidate your collateral, selling some or all of it to cover the outstanding balance, and you could lose those assets even if the market later recovers. This is the central risk of borrowing against crypto, and it is why these loans are overcollateralized and why borrowing well below the maximum LTV gives you more room before a margin call.

Question 9

Is crypto lending safe?

Accepted Answer

Crypto lending is not a savings account, and it is not risk-free. Prices can fall sharply, and if you are borrowing, a large enough drop can force the sale of your collateral. If you are earning yield, a borrower can default or the platform can fail, as several centralized crypto lenders did when they went bankrupt in the last cycle. Digital assets are not FDIC or SIPC insured, and you can lose principal. It can still be a reasonable tool, but only when you understand the risks and size your exposure to what you can absorb.

Question 10

What is the difference between borrowing against crypto and lending crypto to earn yield?

Accepted Answer

They are opposite sides of the same transaction. When you borrow against crypto, you pledge your assets as collateral, receive cash, and owe interest until you repay; your risk is that a price drop forces the sale of your collateral. When you lend crypto to earn yield, you supply your assets for others to borrow and collect a return; your risk is that a borrower defaults or the platform fails. Borrowing gives you liquidity while keeping your position, and lending puts idle assets to work in exchange for taking on credit and platform risk.

What is crypto lending and how does it work?

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