Last Updated on June 21, 2025 by Olga Davis
Crypto investors usually encourage others to “HODL” their investments. By that they mean keeping crypto assets in a wallet until the coin’s price changes. An uneasy feeling might overtake you, making you think how you can get a profit from your digital currency?
This is when it is time for crypto lending platforms. It enables them to unlock the value of their digital assets by using it as a collateral for a crypto loan.
How Do Crypto Loans Work?
Over the years, many cryptocurrencies have experienced significant rises and falls. While some people have become wealthy through trading, others have faced losses due to the market’s volatility.
One secret many successful crypto investors won’t openly share is how they take calculated risks. The key word here is calculated — and one of the best ways to do this is by obtaining crypto loans.
By using your crypto assets as collateral, you can unlock their value without having to sell them. This allows you to explore new opportunities and grow your investments while still holding onto your crypto.
What Is A Cryptocurrency Loan?
We have Bitcoin to thank for coming into play in 2009, thereby changing the way transactions are being made online with its introduction of digital currency – this has brought about Decentralized Finance, which means its operations aren’t controlled by a central entity like traditional banks.
Just as it is when obtaining normal loans where the bank is the lender and you are the borrower, it works the same way when you want to obtain a cryptocurrency loan – the cryptocurrency lending platform is the lender, while you are the borrower.
Also, bear in mind that for you to obtain crypto loans, you need to pledge your cryptocurrency asset as collateral.
Are Crypto Loans Important in the Markets?
Cryptocurrency lending is rapidly becoming an important part of the cryptocurrency space, and even though it hasn’t gained enough popularity, it can still have an impact on how assets are being valued and priced in the markets.
An important element that fuels cryptocurrency lending is its desirable interest rates – making people realize that they can earn higher returns on their crypto assets rather than just letting it sit idle in their wallets.
How Crypto Lending Works?
Let’s illustrate how crypto loans work with a practical example:
Meet David:
- He bought $20,000 worth of Bitcoin.
- His plan is to hold the Bitcoin for at least 6 months (meaning he can’t sell or withdraw during that time).
- Currently, David is low on cash but urgently needs $4,000 for an emergency expense.
The Problem:
- Selling Bitcoin isn’t ideal because:
- The price might be lower than his purchase price.
- Selling breaks his 6-month hold strategy.
- Bank loans aren’t an option because:
- Emergency needs don’t wait for slow bank processes.
- Bank loans usually take days to approve and come with high interest.
The Solution: Crypto Loan
David can use his Bitcoin as collateral to borrow $4,000 in fiat or stablecoins from a crypto lending platform.
- Using a loan-to-value ratio (LTV) of 50%, David needs to pledge $8,000 worth of Bitcoin to get a $4,000 loan.
- When David is ready to repay, he simply returns the $4,000 plus any interest accrued.
- After repayment, he regains access to his pledged $8,000 in Bitcoin and keeps his long-term investment intact.
Why This Works
Crypto loans offer fast access to cash without forcing you to sell your assets or wait days for bank approval. This makes them an excellent option for emergencies or short-term liquidity needs.
Crypto Loans Best Practices
To make the most of your crypto loan while minimizing risks, follow these best practices:
- Start Small: If you’re new to crypto loans, begin with a small amount to familiarize yourself with the process and platform.
- Choose Reputable Platforms: Use well-established, regulated lending services with strong security measures and positive user reviews.
- Understand Loan Terms: Always read and fully understand the interest rates, loan-to-value (LTV) ratios, fees, and repayment conditions before borrowing.
- Manage Your Collateral Carefully: Only pledge crypto assets you can afford to lock up and potentially lose if the market drops and liquidation occurs.
- Monitor Market Conditions: Keep an eye on crypto prices during your loan term to avoid unexpected liquidations due to price volatility.
- Repay Early if Possible: Paying back your loan sooner can reduce interest costs and free your collateral faster.
- Keep Your Account Secure: Enable two-factor authentication (2FA) and use strong passwords to protect your lending platform account.
How Can I Start to Borrow Crypto?
Borrowing crypto is simple and accessible whether you’re new to cryptocurrency or an experienced user. Here’s how you can start borrowing crypto quickly and securely:
- Choose a Crypto Lending Platform
Select a reliable platform like CoinRabbit, known for fast loans, low interest rates (5% APR), and flexible repayment options.
- Prepare Your Crypto Collateral
Make sure you have supported cryptocurrencies such as Bitcoin or Ethereum ready to use as collateral. The typical loan-to-value (LTV) ratio is 50%, meaning you’ll get a loan worth half the value of your pledged crypto.
- Enter Loan Details
On the lending platform, input the amount of crypto you want to pledge. The platform will calculate the loan amount based on its LTV ratio.
- Provide Your Crypto Wallet Address
Specify the wallet where you want to receive your borrowed funds (fiat or stablecoin).
- Transfer Your Collateral
Send the exact amount of crypto collateral to the address provided by the platform.
- Receive Your Loan
After verifying your collateral, the platform will send the loan directly to your wallet.
Cryptocurrency Lending Platforms: Types and Descriptions
We have two types of cryptocurrency lending platforms which are Centralized Finance (CeFi) and Decentralized Finance (DeFi) and they both offer a wide range of benefits such as flexibility, access, speed, and security of crypto assets.
- Centralized Finance (CeFi) lending platform
People are generally used to the idea of borrowing from a central source, they feel safer in a way. That’s what Centralized Finance is all about, the lending and borrowing operations are being controlled by a central entity which could be a website or a company.
There is more flexibility in this lending platform as the company tends to offer juicy interest rates. I mean, juicy interest rates while making the experience of obtaining crypto loans easier? Sounds like a good offer to me.
- Decentralized Finance (DeFi) lending platform
The existence of a middleman as in the case of Centralized Finance is ruled out completely. All financial transactions are being controlled by a set of protocols instructed to be executed on a blockchain network (usually Ethereum blockchain network) and this is known as a smart contract.
The work of the smart contract is to execute dynamic transactions with multiple factors pre-programmed. These factors may include the loan amount, duration, collateral, interest rates, etc.
Conclusion
While cryptocurrency lending does come with certain risks such as market volatility and potential security threats, the opportunity for high returns, liquidity, and flexible loan terms presents significant advantages. As long as investors conduct thorough research, assess their risk tolerance, and work with reputable platforms, the rewards of obtaining a cryptocurrency loan can be substantial, making it an appealing option for those looking to capitalize on the evolving digital asset landscape.
