Crypto Loans Soar to $73.6B, Liquidation Risk Remains Looming
Crypto loans have become increasingly popular in recent years, reaching a record $73.6 billion in Q3 2025. This financial instrument allows borrowers to deposit cryptocurrency as collateral and receive a loan in stablecoins or cash without selling their assets.
The process is simple: borrowers deposit Bitcoin (BTC) or Ethereum (ETH), receive a loan, pay interest over the term, which can be weeks or months, and get their collateral back once they repay the full amount plus interest. No credit checks or employment verification are required, making it an attractive option for those who don't want to sell their crypto holdings.
The market has split into two camps: CeFi (Centralized Finance) and DeFi (Decentralized Finance). CeFi platforms, such as Nexo and Ledn, operate like traditional fintech companies, while DeFi protocols, including Aave and Compound, use smart contracts to issue loans.
One of the key features of crypto loans is overcollateralization, which requires borrowers to deposit more value than they borrow. This ensures that lenders are protected in case the collateral's value drops. However, this also means that liquidation risk remains a significant concern, as illustrated by the $19 billion in positions wiped out on October 10, 2025.