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CeFi vs DeFi Crypto Loans: Which Type of Lender Fits You?
Crypto loans come from two very different kinds of lenders: companies (CeFi) and smart contracts (DeFi). They differ in who holds your collateral, how rates and liquidations work and what can go wrong.
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Side-by-side comparison
| CeFi lender | DeFi protocol | |
|---|---|---|
| Who holds collateral | The company | A smart contract; you keep your wallet |
| Identity checks | Usually KYC | Usually none |
| Loan currency | Stablecoins and often fiat | Crypto and stablecoins |
| Rates | Often fixed or tiered | Usually variable |
| Liquidation | Process set by the company, sometimes with margin calls | Automatic, executed by code |
| Main risk | Company insolvency or frozen withdrawals | Smart contract and oracle failures |
| Support | Customer service | Documentation and community |
When CeFi can make sense
- You need the loan paid out in fiat to a bank account.
- You prefer fixed terms and customer support.
- You are comfortable with KYC and with trusting a regulated company.
When DeFi can make sense
- You want to keep control of your wallet and avoid company custody.
- You are comfortable with wallets, transaction fees and monitoring positions yourself.
- You want to borrow stablecoins quickly without paperwork.
Questions to ask any lender
- Who holds the collateral and can it be lent out again?
- What are the maximum LTV and liquidation threshold?
- What happens to my collateral if the lender fails?
- Has the code or the company been audited, and by whom?
Related: LTV and liquidation, rates and fees, smart contract risk.
Frequently asked questions
It depends on the country and the company. Check the lender’s licences in your jurisdiction.
Most DeFi protocols do not, but front-end websites and some pools may restrict access.
It varies over time. Compare the total cost, including fees and liquidation terms.
This page is for educational purposes only and is not financial, investment or tax advice. Crypto assets are volatile; you can lose all of your money.