How crypto-backed loans work (2026 borrower's guide)

Crypto-backed loans are the simplest way to get liquidity without selling. You pledge digital assets as collateral, the protocol gives you stablecoins (or fiat) against that collateral, you pay interest, and you get the collateral back when you repay. The whole loan is enforced by a smart contract, with no underwriter, no bureau pull, no “decision in 7–10 business days.” That same automation is what makes the loans risky: the contract liquidates without a phone call.

How does a crypto-backed loan work, step by step?

1. You pick collateral. ETH, BTC (as wrapped BTC), stablecoins, blue-chip ERC-20s, and increasingly LSTs and LRTs.
2. You pick a loan amount. The protocol enforces a maximum loan-to-value (LTV), e.g. 50%, meaning that’s how much you can borrow relative to the collateral’s current price.
3. The protocol locks the collateral. Your wallet signs a deposit transaction. The collateral moves into a vault you don’t control until the loan is closed.
4. You receive the borrowed asset. Usually USDC, USDT, or a similar stablecoin in the same transaction.
5. Interest accrues. Often by the second, often at a variable rate that changes with utilization.
6. You repay before the due date. Principal plus accrued interest plus any protocol fees. The collateral unlocks back to your wallet.

What is the loan-to-value ratio (LTV)?

LTV is the single most important number on the loan. It’s the loan amount divided by the current value of the collateral. Protocols enforce two limits:

• Maximum LTV at origination: the most you can borrow at the start. Often 50–75% on volatile collateral.
• Liquidation LTV: the line above which the smart contract liquidates. Usually 5–10 percentage points above the maximum, leaving a buffer for price movement.

If your collateral’s price falls, your LTV rises. Hit the liquidation line and the protocol sells collateral to repay the loan, often with a liquidation penalty on top.

How do loan-to-value limits work for ETH collateral?

LTV caps are set per asset, and the cap reflects how confident the lender or protocol is that the collateral can be sold quickly near its quoted price. ETH sits at the favorable end of that spectrum: deep liquidity on every major venue means it typically earns higher caps than long-tail tokens, which get haircut hard or aren’t accepted at all. The exact cap varies by platform and market conditions, so treat any specific number as a platform-level detail to check at origination, not a universal constant.

The practical rule is the same everywhere: the lower your LTV at origination, the more the price can fall before you’re in trouble. Borrowing far below the cap buys you time and options (top up, repay early, ride it out) that a max-LTV loan never has. On a margin-call model, that buffer is what stands between a normal drawdown and a forced sale. On a fixed-term, no-margin-call loan like Teller’s, a mid-term dip can’t trigger a liquidation at all, so the LTV you choose matters mainly for how realistic repayment or rollover is at maturity. The no-margin-call loan guide walks through that structure in detail.

How do crypto-backed loan interest rates compare?

There is no single going rate, and any article that quotes one number is out of date by the time you read it. What you can do is understand what moves the price. Four factors drive most of the spread between offers:

• LTV. Higher LTV means less buffer for the lender, so borrowing near the cap is priced higher than borrowing conservatively.
• Term structure. Fixed-term, fixed-rate loans price certainty in; open-ended pool loans float with utilization and can get more expensive mid-loan.
• Custodial vs non-custodial. Custodial lenders carry compliance and operations overhead and take custody of your keys; non-custodial protocols hold collateral in a contract you can verify. The models price differently and fail differently. Our Teller vs Ledn comparison works through a concrete custodial-vs-non-custodial example.
• Collateral quality. Blue-chip collateral like ETH and BTC borrows cheaper than volatile long-tail assets.

When you compare offers, compare the all-in APR (including origination and protocol fees, not the headline rate) and the liquidation mechanics side by side. A slightly higher fixed rate with no margin call can be cheaper in practice than a lower variable rate that liquidates you in a drawdown. The same fee-reading discipline we recommend for no-collateral loan fees applies here: the contract terms, not the marketing page, are the offer.

What happens if I don’t repay?

Two paths to default exist, and both end the same way:

• Term-based default: the loan has a fixed maturity (30 days, 90 days, 6 months) and you miss the date.
• LTV-based default: the collateral’s price drops, your LTV crosses the liquidation threshold, and a liquidator triggers the on-chain liquidation function.

In both cases, the protocol sells your collateral at the current market price, repays itself in full, takes its liquidation fee, and (depending on the protocol) returns the residual to your wallet. If the collateral’s market price at liquidation is less than what you owe, you may remain liable for the deficit. If it’s more, you may or may not get the surplus back, depending on the protocol’s rules.

How does a crypto-backed loan compare to a personal loan?

How do I avoid getting liquidated?

Three habits cover most of the risk:

• Borrow well below the max LTV. If the protocol allows 75%, borrow at 40–50%. The buffer is what gives you time when prices move.
• Monitor your loan’s on-chain status. The contract is the source of truth; the app is informational. Don’t assume a notification will land, since most platforms don’t guarantee them.
• Keep dry powder. Have stablecoins ready to top up collateral or repay early if your LTV starts drifting.

Where can I get a crypto-backed loan?

Teller routes you to vetted lending protocols (including the Teller Protocol itself) based on which chain your collateral lives on and what loan size you need. Open the app, head to the home tab, and the loan-offer rail surfaces the matches your wallet currently qualifies for. Compare APRs, durations, and required LTVs before signing.

The risks, restated

• You can lose 100% of any collateral pledged.
• Rates and due dates displayed in any front-end are estimates; the on-chain contract is authoritative.
• Liquidation can happen at any time, including outside business hours, during congested blocks, or while you can’t reach the app.
• Smart-contract bugs, oracle failures, and protocol governance actions can affect your loan in ways no front-end controls.

For the full liability framing, read the Teller Terms of Service. Section 7 covers collateral-backed loans in detail.

Where to start

If the goal is liquidity without selling, start with the borrow-against-crypto guide to size the trade-offs, and note that borrowing against crypto is generally not a taxable event in the US (unlike selling), which the crypto lending taxes guide covers in detail. And if pledging collateral doesn’t fit your situation at all, the unsecured route may: see whether you pre-qualify for a no-collateral personal loan with a soft check that takes about four minutes and never triggers a hard credit pull.