🏦 Crypto Lending Crypto Lending
Borrow assets by locking up crypto as collateral, or earn interest by depositing your crypto for others to borrow — all without selling what you hold.
🏦 The simple version — a pawn shop for crypto
Think of a pawn shop. You hand over something valuable, get cash against it, and reclaim it when you pay back the loan. Crypto lending works the same way: you pledge crypto as collateral, borrow against it, and get the crypto back when you repay. You keep ownership the whole time — you never sell. The catch is you must pledge more value than you borrow, which is called overcollateralization.
⚖️ How much can you borrow? (LTV)
The loan size is set by the Loan-to-Value ratio (LTV) — usually around 50–90% of your collateral's value. So if you deposit $7,500 of ETH, you might borrow about $5,000 of a stablecoin. Borrowing less than the maximum gives you a safety buffer if prices move against you.
🪙 The two sides of lending
| Role | What you do |
|---|---|
| 🙋 Borrower | Pledge crypto as collateral, take out a loan, get cash without selling (and without a taxable sale) |
| 💰 Lender | Deposit your idle crypto into a pool for others to borrow, and earn interest on it |
Lenders' deposits join a shared liquidity pool. The interest you earn is a variable APY (roughly 1–20%, depending heavily on the platform and asset) that rises when more people want to borrow.
🏢 Two places it happens — CeFi vs DeFi
| Venue | How it works |
|---|---|
| 🏢 CeFi (centralized) | A company or exchange sets the rates, holds your funds for you, and enforces the terms. You usually meet this as an "Earn" or "Savings" product. |
| 🤖 DeFi (decentralized) | Your own wallet talks to a smart contract that manages everything automatically. No identity or credit check. Protocols like Aave and Compound work this way. |
📊 APY is not fixed. Any rate you see is a moving estimate, not a promise — it changes with borrowing demand all the time.
🚨 Things beginners should know
- 📉 Liquidation — If your collateral falls below a safety threshold, the protocol sells it automatically to repay the loan, usually with a penalty fee
- 🚫 No insurance — Unlike a bank deposit, nothing protects your funds; a hacked contract or a failed platform can wipe them out
- 💥 Platform risk — Centralized lenders can freeze withdrawals or go bankrupt, as Celsius, Voyager, and BlockFi did in 2022
- ⚡ Flash loans — An advanced no-collateral loan that must be borrowed and repaid inside one transaction, or the whole thing reverses as if it never happened
❓ FAQ
- Is crypto lending a safe way to earn interest, like a bank savings account?
- No. There is no deposit insurance. Centralized lenders can freeze withdrawals or go bankrupt — Celsius, Voyager, and BlockFi all collapsed in 2022 — and DeFi smart contracts can be hacked. The interest rate is also variable, not a fixed guarantee.
- Do I need good credit to borrow?
- In DeFi, no. There is no credit check or identity check. The loan is secured purely by the crypto you pledge, and you must pledge more than you borrow. The collateral is the only thing the protocol cares about.
- What happens if my collateral drops in value?
- If it falls below a safety threshold, the loan gets liquidated: the protocol automatically sells your collateral to repay what you owe, usually with a penalty fee. You can avoid this by borrowing well under the limit or adding more collateral early.