How it works
1. Collateral and the loan
You post Bitcoin as collateral. The lender advances funds. You keep upside if Bitcoin rises. You keep the obligation to repay, and the risk if price falls.
Most products skip a traditional credit check. The collateral and the loan rules carry the risk.
2. Loan-to-Value (LTV)
LTV is the loan amount divided by the value of your Bitcoin. A 50% LTV means you borrow half of the collateral value. Higher LTV means more cash now and less room if price falls.
- Starting LTV: set at funding
- Margin call LTV: alert to add collateral or repay
- Liquidation LTV: the level where collateral can be sold
3. Custody: who holds the keys
Custody is who can move your Bitcoin during the loan. It is one of the first questions to answer.
Custodial
A platform or qualified custodian holds the coins. Ask about segregation, audits, and insurance.
Collaborative multisig
You hold a key (for example 2-of-3). No single party can move funds alone. Often higher cost and minimums.
Non-custodial / P2P
Protocol or escrow holds the rules. The company does not hold your keys. Trade-offs include protocol risk and less simple UX.
4. Rehypothecation
Rehypothecation means the platform re-uses your collateral for its own purposes. Clear “No,” with evidence, is stronger than “limited” or silence. This field is front and center on Compare and provider pages.
5. When price falls: call, cure, liquidation
If Bitcoin drops, LTV rises. Lenders follow a path. Know each step before you sign.
Margin call
An alert that LTV is too high. You may need to act.
Cure window
Time and methods to restore LTV: add BTC, repay cash, or other allowed steps.
Liquidation
Sale or conversion of collateral. Style matters: partial vs full, fees, residual BTC returned.
Example path at 50% start and 80% liquidation:
1. Starting LTV
50%
2. Margin call
~70%
3. Cure window
e.g. 24–72h to restore target
4. Liquidation
80%
At 50% starting LTV, Bitcoin must fall about 37.5% for LTV to reach 80%.
6. Cost: rate is not the whole price
Compare rates with origination, renewal, prepayment, and liquidation fees. A low rate with weak cure rules can cost more in a drawdown than a slightly higher rate with clear process.
7. How we look at providers
- Custody and counterparty who holds keys, rehypothecation, audits, track record
- Call, cure, liquidation the LTV path under stress
- Cost and service rates, fees, terms, and how they treat borrowers