Crypto Collateral: Which Assets You Can Borrow Against and How Haircuts Work
Collateral is what makes most crypto loans possible. The asset you lock decides how much you can borrow, how close you are to liquidation and what happens in a crash.
What lenders accept as collateral
| Asset type | Typical treatment | Why |
|---|---|---|
| Bitcoin and ether | Higher LTVs than most other crypto | Deep, liquid markets |
| Stablecoins | Often the highest LTVs | Low price volatility, but issuer and depeg risk |
| Liquid staking and wrapped tokens | Accepted by some platforms with lower limits | Extra smart contract and depeg risk |
| Smaller tokens | Low LTVs or not accepted | Volatile and thinly traded |
Haircuts: why LTVs differ
A haircut is the discount a lender applies to collateral value to protect against price drops. A volatile asset gets a bigger haircut and therefore a lower maximum LTV. The lender needs time to sell collateral before it is worth less than the loan.
How collateral choice affects your risk
- Volatility: the more an asset can fall in a day, the further below the maximum LTV you should stay.
- Liquidity: thinly traded assets can be sold at a deep discount during liquidation.
- Correlation: borrowing a volatile asset against another volatile asset can magnify swings.
- Extra layers: wrapped and staked tokens add smart contract and depeg risk.
Rehypothecation
Some centralized lenders lend out the collateral you deposit. This can lower borrowing costs but means your collateral is exposed to the lender’s other activities. Check the terms and prefer segregated custody when available.
Practical tips
- Prefer liquid collateral you would be comfortable holding through a large drawdown.
- Keep extra collateral ready to add.
- Check how each asset counts towards your borrowing limit.
Next: LTV and liquidation, or back to crypto lending basics.
Frequently asked questions
Liquid assets with deep markets usually get the best terms, but every asset carries risk.
Many platforms accept them, often with high LTVs, but you take on issuer and depeg risk.
A discount applied to the value of collateral to protect the lender against price falls.
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.