What Are Crypto Loans And How Do They Work?

Crypto loans reached a record $73.6B in Q3 2025, and the mechanism behind them is simpler than most beginners expect — deposit cryptocurrency as collateral, receive a loan in stablecoins or cash, repay with interest, and get your crypto back without ever selling it.

TL;DR:

• Crypto loans let holders borrow against their assets without selling, avoiding capital gains taxes and keeping exposure to future price gains.
• The market split into two camps: centralized platforms (CeFi) like Nexo and Ledn, and decentralized protocols (DeFi) like Aave and Compound, with DeFi now commanding roughly two-thirds of all lending activity.
• Overcollateralization is standard — most borrowers must lock up more value than they receive — and liquidation risk remains the biggest danger, as the Oct. 2025 crash proved when $19B in positions were wiped out in a single day.

What Exactly Is a Crypto Loan?

A crypto loan works like a pawnshop, but for digital assets. The borrower hands over Bitcoin (BTC) or Ethereum (ETH) as collateral. The lender holds that collateral and issues a loan.

The loan usually arrives in stablecoins such as USDC (USDC), Tether (USDT), or Dai (DAI). Some centralized platforms also offer fiat currencies like USD or EUR.