Crypto Lending Basics: How Lending Digital Assets Works
Crypto lending connects people who hold digital assets with people who want to borrow them. Before choosing a platform, it helps to understand who is on each side, what secures the loans and where the interest comes from. This page covers those basics.
The two sides of every crypto loan
| Lenders | Borrowers | |
|---|---|---|
| What they want | Interest on assets they already hold | Liquidity without selling, or leverage |
| What they provide | Stablecoins or crypto | Collateral and interest payments |
| Main risk | Not getting their assets back | Liquidation of collateral |
What secures a crypto loan
Most crypto loans are overcollateralized: the borrower locks assets worth more than the loan. If the collateral falls in value, it is sold to repay the lender. Some products, mainly for businesses, use credit assessment and legal agreements instead. See crypto collateral explained.
Where the interest comes from
Borrowers pay interest, and the platform passes most of it to lenders after its fee. Rates depend on demand for borrowing, the risk taken and any token incentives. See lending rates and APY.
The main platform types
- DeFi lending protocols: smart contracts match lenders and borrowers; see how lending protocols work.
- Centralized lenders: companies that take custody of assets and set terms; see CeFi vs DeFi loans.
- On-chain credit pools: lending to businesses; see on-chain credit.
The key terms in one place
LTV, liquidation threshold, utilization, APR and APY appear in every lending product. Our crypto lending glossary explains them in plain language.
When to be careful
- Lending and borrowing are not insured like bank deposits.
- High advertised rates usually mean higher risk or temporary incentives.
- Start small, test withdrawals and read our risk and security guide.
Frequently asked questions
No. Lending gives your assets to borrowers in exchange for interest; staking locks tokens to help secure a blockchain.
Traders, investors who want liquidity without selling, and businesses that need working capital.
Yes, through platform failure, exploits, borrower default or a stablecoin losing its peg.
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.