Onchain Crypto Collateral: Unlock Higher Loan-To-Value Ratios
Why Onchain Crypto Collateral Gets You Better Loan Terms
Fabian Dori, chief investment officer at Sygnum, highlights a key advantage for borrowers in the crypto-backed loan market: using onchain assets as collateral. Banks and crypto lending platforms often prefer direct token holdings over exchange-traded funds (ETFs) when securing loans.
According to Dori, onchain assets offer superior liquidity. This allows lenders to execute margin calls on demand and provide borrowers with higher loan-to-value (LTV) ratios. The ability to liquidate collateral in real-time significantly reduces risk for the lender.
“It’s actually preferable to have the direct tokens as collateral because then you can do it 24/7. If you need to execute a margin call on an ETF on Friday at midnight when the market is closed, then it’s more difficult. So, direct token holding is actually preferable from that point of view.”
Loan-to-value (LTV) in crypto lending represents the loan amount relative to the value of the collateral, such as Bitcoin (BTC) or Ethereum (ETH). A higher LTV allows a borrower to access more credit against their crypto holdings. Conversely, a lower LTV results in a smaller loan for the same amount of collateral.
While still a developing sector, crypto-backed loans are poised for growth as crypto adoption increases. Financial institutions are increasingly accepting crypto as collateral, and major developments are unfolding in the traditional finance (TradFi) space.
TradFi Warms Up to Crypto-Backed Lending
The increasing acceptance of crypto-backed loans is highlighted by recent developments on Wall Street.
- Figure Technology Goes Public: Figure Technology, a crypto-backed lending company, recently debuted on the Nasdaq exchange. Its shares surged over 24% on the first day, resulting in a market capitalization exceeding $6.8 billion.
- JP Morgan Considers Crypto Loans: Financial giant JP Morgan is reportedly considering offering crypto-backed loans to its clients, potentially launching in 2026.
This growing acceptance signals a maturing market for crypto-backed lending, offering new opportunities for both lenders and borrowers. As adoption grows, Codeum can provide essential security audits and smart contract development to help ensure the safety and efficiency of platforms involved in this space.