The market for bitcoin-backed loans, which lets holders borrow cash or stablecoins without selling bitcoin, is recovering after the 2022 collapse and expanding into mainstream finance. That comes as investment-grade rated securitised deals emerge and major financial institutions also enter the market.

As of Oct. 21, centralised crypto lending has more than tripled since its late-2023 low, blockchain media outlet Decrypt reported. Even as the market expands, collateral liquidations triggered by sharp drops in bitcoin prices and asset-management risks at lenders remain key variables.

Bitcoin-backed loans involve pledging held bitcoin (BTC) as collateral and borrowing a portion of its value. An advantage is that borrowers can keep their exposure to potential price gains without selling bitcoin. Borrowers get their collateral back after repaying principal and interest. Tax treatment of the loan itself and tax burdens arising from a sale vary by jurisdiction.

A key metric is the loan-to-value (LTV) ratio. The industry typically applies 30 to 70 percent. For example, if a borrower pledges bitcoin worth $100,000 (about 132.7 million won) and applies an LTV of 50 percent, the borrower can borrow $50,000 (about 66.4 million won). If the bitcoin price falls and collateral value declines, the LTV rises. Once it exceeds a certain level, the lender may demand additional collateral or partial repayment, and failure to comply can lead to liquidation of some or all of the collateral. In decentralised finance, smart contracts can automatically execute liquidations.

Lending is split into centralised finance (CeFi) and decentralised finance (DeFi). Centralised operators verify identity and hold collateral directly or through custodians. DeFi manages collateral through smart contracts and often converts bitcoin into wrapped tokens for use on other blockchains. Wrapped bitcoin is a token issued with actual BTC held in custody and backed 1-for-1.

The market suffered a trust crisis after the bankruptcies of Celsius and BlockFi in 2022. One issue then was rehypothecation, where lenders re-lent customer collateral to third parties. As concerns grew that customer assets could be exposed to additional risks, some companies restricted rehypothecation and improved collateral custody structures. For example, Unchained adopted a 2-of-3 multisignature structure in which the borrower, the company and an independent key manager each hold keys, designed so that no single party can move collateral on its own.

The market is seeing expansion and adjustment at the same time. In the second quarter of 2026, total crypto-backed lending stood at $56.16 billion (about 74.524 trillion won), down 16.8 percent from the previous quarter, Galaxy Research said. As borrowers reduce leverage, centralised lenders' outstanding loan balances surpassed DeFi protocols.

Participation by mainstream finance is also increasing. Lend completed a $188 million (about 250.0 billion won) bitcoin-backed asset-backed securities deal in February 2026. S&P Global assigned a preliminary BBB- rating to $160 million (about 212.0 billion won) of senior notes. Silicon Valley Bank (SVB) described it as the first investment-grade rating given to a bitcoin-backed loan portfolio. Coinbase also said its executed bitcoin-backed loans exceeded $1 billion (about 1.327 trillion won) by its own tally. SVB said several major financial institutions began offering bitcoin-backed loans to some clients in the first half of 2026.

Interest rates vary widely depending on the provider and loan terms. As of October 2026, posted rates at Coinbase start at an annual 5.8 percent. Salt offers an annual 7.49 to 10.5 percent, and Lend offers an annual 11.49 percent for loans below $250,000 (about 331.8 million won) and an annual 9.25 percent for loans of $2 million (about 2.654 billion won) or more. Strike applies an annual 10.5 to 13 percent to loans with monthly interest payments, and adds 1 percentage point if interest is paid in a lump sum at maturity. Unchained lists a nominal interest rate of 12 percent and an annual percentage rate (APR) of 14.18 percent. DeFi rates fluctuate based on supply and demand.

Borrowers should check not only headline rates but also origination, early repayment and liquidation fees, along with how collateral is held. If the bitcoin price plunges, collateral can be liquidated, and DeFi can also incur losses due to vulnerabilities in smart contracts or related infrastructure.

In April 2026, after an attack that siphoned $291 million (about 386.0 billion won) from infrastructure related to KelpDAO, Aave users had difficulty withdrawing funds during a large outflow. The market is expanding into mainstream finance, but when choosing loan products borrowers should consider not only rates but also who manages collateral, liquidation terms and technical risks.