What Crypto Loans Are and How They Work

Crypto loans allow you to obtain fiat money (such as dollars) by leaving your digital assets as collateral. Instead of selling your Bitcoin or Ethereum, you deposit them on a platform that lends you a percentage of their value—typically between 50% and 70%—in exchange for interest. If you meet the repayment, you get your crypto back intact; if not, the platform may liquidate it.

These loans can be managed by centralized platforms (CeFi) like Ledn, Binance Loans, or Nexo, or decentralized ones (DeFi) like Aave and Compound. In both cases, the user retains exposure to the crypto market while obtaining immediate liquidity. This option is gaining traction among investors who seek liquidity without selling during downturns or those who need quick resources without going through banking procedures.

Advantages and Operating Dynamics

• Liquidity without selling: you maintain your investment while getting cash.

• Quick access: you can have the loan approved and in your wallet within minutes.

• Fewer requirements: no credit history check, only the value of the collateral.

• Flexible options: rates starting at 6% annually and terms from 7 days to 12 months.

• Various cryptocurrencies accepted: BTC, ETH, USDT, DAI, among others.

The process is simple: connect your wallet, deposit the collateral, choose the amount and term, sign digitally, and receive the funds in your account. If the crypto price drops too much, the platform may request more collateral or execute an automatic liquidation.

Available Platforms and Real Use Cases

There are already several platforms operating internationally that offer cryptocurrency loans. The most used are Ledn (with support in Spanish and funding in USD or USDC), Binance Loans (within the Binance ecosystem), Nexo, and emerging ones like BlockFi. In DeFi, Aave, Compound, and MakerDAO allow more experienced users to interact directly with smart contracts to request loans from wallets like MetaMask.

CeFi platforms are generally more accessible for new users and allow for payment in fiat currency. DeFi platforms, on the other hand, offer greater control, transparency, and potentially better rates, but require technical understanding of the ecosystem and the risks associated with smart contracts.

Typical Uses of Crypto Loans

• Obtaining liquidity without selling crypto during bear markets.

• Covering emergencies or unexpected expenses without selling Bitcoin.

• Taking advantage of investment opportunities without liquidating your portfolio.

• Avoiding taxes on crypto sales by maintaining holdings.

• Receiving money in stablecoins and using it as digital dollars.

Example: A user with 1 BTC requests a loan for 50% of its value in USDT. They obtain the equivalent amount with a 9% annual rate. They use that money to pay off debts and, at the end of the term, recover their BTC, provided it was not liquidated due to a price drop or non-compliance.

Risks, Regulation, and Tax Considerations

While crypto loans can be useful, they are not without risks. The main risk is volatility: if the price of the cryptocurrency you leave as collateral drops significantly, you could lose it. There is also technological risk (smart contract failures), legal risk (if the platform does not operate under local regulations), and counterparty risk (if it is CeFi and the company goes bankrupt, as happened with Celsius or BlockFi).

There is not yet specific regulation for crypto loans, but tax authorities demand that you declare any income derived from DeFi or CeFi platforms, as well as the interest earned or paid. If you take a loan and make a profit investing that money, you must include it in your annual return.

Key Risks and How to Mitigate Them

• Collateral volatility: if it drops, you could be automatically liquidated.

• Hidden fees or unfavorable terms: always read the terms.

• Issues with unregulated platforms: research before using.

• DeFi risks: ensure the contract is audited and has real liquidity.

• Tax aspects: declare any income, interest, or gain.

A crypto loan should not be an easy way out of debt: use it strategically, such as preserving your portfolio, covering an urgent expense, or taking advantage of an opportunity without needing to sell your assets. Carefully evaluate the loan-to-collateral ratio and prepare to cover additional requirements if the market turns bearish.

With clear information, responsible use, and strategic vision, crypto loans can be a powerful liquidity tool within an evolving digital economy.