Crypto-backed lending is becoming more popular. And that’s not just with enthusiasts of the digital currency. Every day, mainstream borrowers are discovering the benefits too. You can now borrow to fund a big purchase or cover unexpected expenses with crypto-backed loans. This article is going to take a look at crypto-backed lending and how it’s gaining traction within mainstream finance.
The growth of crypto-backed lending in 2025
The volume of crypto-backed loans is growing rapidly. As of March 31, 2025, $33.9 billion of crypto assets were locked in DeFi lending protocols on EVM chains, with $15.3 billion of that actively borrowed and $39.07 billion total open borrows across both DeFi and CeFi platforms, marking a 4.88% decline in borrowing volume compared to the previous quarter.
Homeowners and entrepreneurs are now leveraging Bitcoin loans to fund large expenses without liquidating their crypto. Fintech and neobanks are integrating crypto-backed lending products into their platforms. Regulatory acceptance is increasing, signaling a shift toward broader market legitimacy.
Bitcoin loans are increasingly being used in a number of different ways. This isn’t just by crypto enthusiasts, but by a growing number of mainstream borrowers too. These loans are being used for: Home improvement, debt consolidation, small business needs, unexpected expenses and even further investment. It has become a useful financial tool, not just speculative borrowing.
How Bitcoin loans work
With Bitcoin loans, the idea is that you don’t sell your Bitcoin to get cash. You use your Bitcoin as collateral to secure your loan. Your Bitcoin is kept in a secure custodial wallet during the loan. Your Bitcoin is highly secure. These wallets typically come with measures like multi-signature authorization or cold storage. This helps to protect the collateral from theft or loss while providing the lender access if the borrower defaults.
The amount you can borrow will depend on the Loan-to-value ratio. The two deciding factors here are the platform and market volatility. A low LTV means more safety for the lender but less cash for the borrower. Most Bitcoin loans will rely smart contracts to automate key parts of the loan agreement. This is one of the main reasons why crypto-backed loans are so quick. Smart contracts can automatically enforce terms like repayment schedules, interest accrual and collateral management. Automation doesn’t just speed up the process; it also reduces the risk of human error.
Loan platforms have to always be monitoring the value of your collateral. The price of Bitcoin is extremely volatile; a price drop could change everything. If your loan-to-value exceeds a safe threshold, a platform may issue a margin call. You would then have to add more collateral or repay part of the loan to avoid liquidation. Once you have repaid your loan, as well as any interest, the platform then releases your Bitcoin back to your wallet. However, if you fail to repay or meet margins, the platform could liquidate some or all of your collateral to cover the outstanding loan amount.
The benefits and risks
Considering the pros and cons of a crypto-backed loan is a great way to decide if it’s right for you. One of the major benefits is that there’s no need to sell your Bitcoin. You can maintain long-term investment exposure while still accessing cash. With loan approval and funding processing in a few hours, you have quick access to funds. You can also avoid triggering capital gains by using crypto as collateral instead of selling.
These loans are extremely accessible and flexible. What’s great is that loan approval is based on the value of your cryptocurrency. Your credit score doesn’t come into the equation. This is great for borrowers with less financial experience. However, they do require financial awareness and risk management, especially with volatility. Additionally, funds can be used for almost anything. This includes home repairs, debt consolidation and even business expenses.
However, there are a number of cons too. While you shouldn’t let these deter you, it’s important to be aware of them. One important aspect to be aware of is that regulatory oversight varies by country and protections for borrowers aren’t always clear. And one of the biggest risks is market volatility. This can be both beneficial and risky. If Bitcoin’s value drops significantly, you could face margin calls or collateral liquidation. Additionally, you may find rates to be higher than traditional loans. This will depend on the platform and market conditions. So it’s important to do your research and ensure you’re using the right platforms at the right time. You may also face some limitations. Most platforms will only allow you to borrow 30-70% of your Bitcoin’s value.
Crypto-backed loans are becoming a practical option for everyday borrowers
Bitcoin loans and other crypto-backed lending options are starting to become more popular. This isn’t just among crypto enthusiasts but also everyday borrowers who are looking for speed, flexibility and smarter ways to access liquidity. These loans come with important risks especially related to market volatility. Their growing adoption signals a shift in how people think about borrowing. As regulations catch up and more institutions enter the space, Bitcoin loans are poised to become a mainstream alternative for those who want to hold onto their crypto and still meet financial goals.
