Crypto Lending in the US: How It Works, What It Costs, and What the IRS Expects

Crypto lending allows borrowers to pledge digital assets, typically Bitcoin or Ethereum, as collateral for a loan in fiat currency or stablecoins, without selling the underlying crypto. Interest rates range from roughly 1.9% per year at Nexo to 7.25% APR at Arch Lending (2026). The loan itself is generally not a taxable event, but if the platform liquidates the collateral due to a price drop, that forced sale triggers capital gains reporting on IRS Form 8949.

Crypto lending lets you borrow fiat or stablecoins by pledging cryptocurrency as collateral, without selling your assets and triggering capital gains. The borrower locks up Bitcoin, Ethereum, or another digital asset with a platform, receives cash or USDC in return, and repays principal plus interest to reclaim the collateral. The catch: if the pledged crypto's value drops below a preset threshold, the platform liquidates it. And that liquidation is a taxable event in the eyes of the IRS. This guide walks through the mechanics, the real rate landscape, what the SEC said in 2026, and exactly when the tax bill comes due.

Pour comprendre plus en détail les mécanismes, consultez notre article sur Crypto Lending Explained: Collateral, LTV Math & IRS Rules.

In brief

• A crypto-backed loan provides liquidity without selling your digital assets, deferring capital gains tax, but only as long as the collateral is not liquidated.
• LTV ratios on Bitcoin range from 50% to 70%, meaning you over-collateralize by 200% or more. Altcoins face steeper haircuts.
• Actual borrowing rates span from 1.9% per year (Nexo, 2026) to 7.25% APR (Arch Lending, 2026) depending on LTV tier, asset type, and custody model.
• Forced liquidation is a taxable event: the IRS treats it as a sale, and you owe capital gains on the appreciation even though you never received the proceeds.
• The SEC clarified federal securities law applicability to crypto activities in March 2026, platform insolvency risk and evolving regulation remain live concerns for US borrowers.

What Is Crypto Lending?

A crypto-backed loan is a credit arrangement where you deposit digital assets as security and receive cash or stablecoins in return. The collateral stays locked with the lender until you repay the principal plus interest. Unlike selling crypto, borrowing against it does not dispose of the asset, so no capital gains tax triggers at the moment you take the loan.

Two overlapping models dominate the US market. Each subjects the borrower to different custody dynamics, rate structures, and regulatory exposure. The choice between them shapes everything from your liquidation risk to how the IRS views your transaction.

Centralized (CeFi) vs. Decentralized (DeFi) Platforms

Centralized platforms (CeFi) operate like traditional lenders. You transfer your crypto to a company, Coinbase, Nexo, Arch Lending, Figure, which holds it in custody and issues your loan in dollars or USDC. The platform sets the rates, determines the loan-to-value (LTV) ratio, and manages liquidation if collateral values crater.

Decentralized platforms (DeFi) replace the company with smart contracts. Protocols like Aave and Compound let you deposit crypto into a liquidity pool and borrow against it algorithmically. No KYC, no credit check, no human intervention. The tradeoff: DeFi loans expose you to smart-contract risk, oracle manipulation, and a regulatory gray zone that the SEC is actively examining as of 2026.

Si vous souhaitez explorer les options DeFi, découvrez les Best DeFi Lending Platforms for BTC Borrowers in 2026.

Why Borrowers Use Crypto Loans Instead of Selling

Selling Bitcoin to fund a home renovation or a business expense creates an immediate taxable event. If you bought BTC at $20,000 and sold at $60,000, that $40,000 gain is subject to capital gains tax, short-term or long-term depending on your holding period.

A crypto-backed loan sidesteps that. You keep the asset, which can continue appreciating, while accessing liquidity. This is the same tax logic that makes securities-backed lines of credit popular among high-net-worth investors: borrow against the portfolio, don't sell it. The IRS has not classified taking a crypto loan itself as a disposal event, but the agency does require reporting of all digital asset transactions on your tax return (IRS, current). The nuance is in what happens if things go wrong, which the tax section below covers.

How LTV Ratios and Over-Collateralization Work

Loan-to-value (LTV) is the ratio that governs how much you can borrow relative to the value of your pledged crypto. A 50% LTV means every dollar borrowed requires two dollars in collateral. This is not lender greed: it is a volatility buffer. Bitcoin routinely moves 5% in a single trading session, and a platform with 90% LTV leaves almost no room before the loan becomes undercollateralized.

Most US-facing platforms set LTV ceilings between 50% and 70% for Bitcoin and Ethereum. Smaller-cap altcoins face lower LTV limits, sometimes as low as 20%, because their price swings are wider and liquidity is thinner. For a deeper look at how collateral mechanics play out across different loan structures, see our guide on how crypto as collateral works in practice.

Step-by-Step LTV Calculation Example

Take a concrete case. You need $10,000 in cash. Nexo offers a 50% LTV on Bitcoin. The math:

• Required collateral: $10,000 ÷ 0.50 = $20,000 in BTC
• Collateralization ratio: 200% of the loan amount
• If BTC trades at $60,000, you pledge roughly 0.333 BTC

Now suppose the platform sets a liquidation threshold at 80% LTV. That means if your collateral value drops to $12,500, a 37.5% decline in BTC price, the loan hits the danger zone. The platform can sell your Bitcoin immediately to recover the principal. You keep the $10,000 you borrowed, but you lose the 0.333 BTC and owe taxes on any gain embedded in the disposal.

Liquidation Triggers: What Happens When Collateral Value Drops

The margin call, or, more accurately in crypto, the liquidation trigger, works differently than in equities. Most crypto lenders do not issue gentle phone calls asking you to post more collateral. They use automated liquidation engines that sell your assets the moment the LTV breaches the threshold.

A typical sequence:

• The platform monitors the dollar value of your collateral continuously, 24/7
• When LTV hits the liquidation threshold, say 80%, the smart contract or platform algorithm sells enough collateral to bring LTV back below a safe level, or liquidates the entire position
• Some platforms allow a partial liquidation (enough BTC sold to cover the shortfall), others liquidate everything
• You usually pay a liquidation penalty fee, commonly 2% to 5% of the liquidated amount

The automation is a feature of the asset class: crypto markets never close, so neither does risk management. Platforms cite this as a safeguard for both borrower and lender. The borrower's perspective is less sanguine: a weekend flash crash can wipe out the collateral before you even open the app.

Crypto Lending Rates: What to Expect in 2026

Crypto lending rates in 2026 span a wide band. At the low end, promotional headline rates can dip below 2%. At the high end, origination fees and rate tiers push effective borrowing costs above 10% APR. The spread depends on three variables: the platform, the LTV tier you select, and the specific asset you pledge.

No single rate fits every loan. A borrower taking a 20% LTV credit line against Bitcoin will pay far less than someone maxing out a 70% LTV loan against a volatile altcoin. What follows is a snapshot of three US-accessible platforms with publicly disclosed rate ranges.

Crypto Lending Rates Comparison Table

Nexo's 1.9% represents the lowest tier: platinum loyalty level, low LTV, and likely a stablecoin collateral preference. Arch Lending's 7.25% APR reflects its custodial model and higher operational overhead, your collateral sits with a regulated third-party custodian, not on the platform's balance sheet. Figure does not publicly disclose a base rate range in its SERP snippet; its value proposition is speed and simplicity.

Factors That Move Your Rate Up or Down

Several levers determine where your actual rate lands.

• LTV ratio: Lower LTV loans carry lower rates. Borrowing $5,000 against $20,000 in BTC (25% LTV) is safer for the lender than borrowing $14,000 against the same collateral (70% LTV).
• Collateral asset: BTC and ETH attract the best rates. Solana, XRP, and smaller-cap tokens face rate premiums because their price histories are more volatile and their futures markets less liquid for hedging.
• Platform loyalty tiers: Nexo and similar platforms tie rates to token holdings, holding their native token (NEXO) reduces your rate. The tradeoff: you are adding exposure to a platform-specific token on top of your crypto collateral.
• Custody model: Qualified custodians, which must meet state and federal safekeeping standards, add cost. Platforms using qualified custodians, Arch Lending is an example, typically quote higher base rates than platforms holding assets on their own books.
• Loan currency: Borrowing USDC or USDT sometimes carries a different rate than borrowing USD via wire transfer. The stablecoin route avoids bank delays but introduces a conversion step when you need dollars in your checking account.

Is Crypto Lending Legit? Regulatory and Platform Risks

The short answer: yes, crypto lending is a legitimate financial activity. But legitimacy does not equal safety. The market operates at the intersection of state lending laws, federal securities regulation, and platform solvency risk, three layers that can fail independently.

The SEC clarified on March 17, 2026, that federal securities laws apply to certain crypto asset activities including protocol staking and the wrapping of non-security assets (SEC press release 2026-30). That clarification did not single out lending explicitly, but it signaled that the Commission views the crypto credit ecosystem as within its perimeter. Then on July 22, 2026, SEC Commissioner Hester Peirce issued a statement specifically addressing crypto vaults and lending strategies, noting that these systems "allow participants to deposit their assets into onchain systems that lend them for a fee to borrowers" (SEC, July 2026).

The regulatory picture is evolving. The SEC's proposed Regulation Crypto Assets (August 18, 2026) defines "crypto asset" broadly to cover any digital representation of value (SEC proposed rule 33-11434). That definition could pull a wide set of lending activities into the agency's disclosure and registration framework. For borrowers today, the implication is straightforward: the platform you use in 2026 may face different legal obligations, or may not exist in its current form, a year from now.

Toutefois, il est crucial de considérer si Is Crypto Lending Risky? 6 Real Dangers Every Borrower Must évalue les risques potentiels.

What the SEC Said About Crypto Lending in 2026

The SEC's 2026 actions do not ban crypto lending. They signal that the Commission intends to bring crypto credit under federal oversight, with disclosure requirements and anti-fraud provisions. Commissioner Peirce's July statement was measured: she described the strategies factually, without declaring them unlawful, but within a framework that implies market participants should expect regulatory engagement.

The proposed Regulation Crypto Assets rulemaking, if finalized, could require lending platforms to register as securities intermediaries or to file disclosures about collateral management, liquidity, and risk. None of this is settled. Borrowers should read platform terms of service with the understanding that the legal foundation beneath those terms is still under construction.

Platform Insolvency Risk: The Mistake Borrowers Overlook

Regulatory uncertainty is not the only risk. Platform insolvency is the one borrowers most often overlook, and it has a track record. The 2022 collapses of Celsius, Voyager, and BlockFi demonstrated a brutal dynamic: when a CeFi lender fails, customer collateral can get entangled in bankruptcy proceedings. Borrowers with outstanding loans were sometimes treated as unsecured creditors despite having pledged assets.

The scale of the market makes this risk material. As of March 31, 2026, Coinbase held $1.1 billion in crypto assets as collateral, with an additional $90.7 million held for operations and $246.4 million in other crypto assets (SEC filing, coin-20260331). That concentration means a single platform's failure could affect a large number of borrowers.

The mistake borrowers make is treating the loan and the collateral as separate. They are linked. If the platform goes under, your loan does not vanish: someone, a bankruptcy trustee, a creditor committee, still has a claim on it. Meanwhile, the collateral you thought was safely segregated may be tied up for months or years.

Choisir une Crypto Loan Company: How to Borrow Against Bitcoin in 2026 demande une analyse approfondie des risques et des avantages.

IRS Tax Rules for Crypto Borrowers

Taking out a crypto-backed loan does not, by itself, create a taxable event. You are borrowing, not selling. The IRS Digital Assets page confirms that taxpayers must report transactions involving digital assets on their tax returns (IRS, current), and a loan origination, where you receive cash and pledge collateral, is not a disposal. The cost basis of your Bitcoin or Ethereum remains unchanged.

This is the tax efficiency that makes crypto loans appealing: liquidity without triggering capital gains. But the IRS's silence on whether interest payments on a crypto loan are deductible, unlike mortgage interest or margin interest in a taxable brokerage account, means you should assume they are not, unless a tax professional advises otherwise based on your specific use of proceeds.

For readers interested in the income side, earning yield by lending out crypto rather than borrowing against it, see our guide on the tax treatment of crypto lending income.

When Borrowing Is Not a Taxable Event

A properly structured crypto loan follows this tax logic:

• You deposit 0.5 BTC (cost basis: $15,000, current value: $30,000) as collateral
• You receive a $15,000 loan at 50% LTV
• The IRS sees no sale, no gain, no Form 8949 entry
• Six months later, you repay the $15,000 plus interest, reclaim the 0.5 BTC, and the cost basis remains $15,000

The non-event status holds as long as the collateral stays in your name and is not sold. The moment a liquidation occurs, the analysis flips.

Forced Liquidation and Capital Gains: The Tax Trap to Know

The tax trap snaps shut when the platform liquidates. Suppose that same 0.5 BTC position triggers liquidation after a price drop to $22,000. The platform sells your Bitcoin to recover the $15,000 loan. The IRS treats that forced sale exactly like a voluntary one:

• Proceeds: $22,000
• Cost basis: $15,000
• Capital gain: $7,000, reported on Form 8949 and Schedule D
• If you held the BTC for more than one year, the gain is long-term (preferential rate). If less, it is short-term (ordinary income rates).

The insult to the injury: the gain is taxable even though you did not pocket the proceeds. The platform took the BTC to cover your debt. You still owe tax on the appreciation. This is the direct consequence of ignoring liquidation thresholds, a tax bill on money you never saw.

How to Choose the Best Crypto Lending Platform for You

Picking a platform is not about finding the lowest advertised rate. It is about matching the platform's structure to what you actually need: which asset you are pledging, how much leverage you want, whether you care about custody segregation, and how you handle a 24/7 liquidation risk.

Most platforms that serve US borrowers fall into three buckets. Figure and similar fintech lenders focus on speed, same-day approval, simple interfaces, limited asset support (BTC, ETH, SOL). Nexo and comparable CeFi platforms offer broad asset support (100+ tokens) and tiered rates that reward platform loyalty. Arch Lending sits in the qualified-custodian niche: higher rates, but your collateral sits with a regulated third party rather than on the platform's books.

No single platform wins on every dimension. A borrower pledging Bitcoin at 30% LTV who wants the lowest possible rate will gravitate toward Nexo. A borrower pledging a diversified basket who values custody segregation will lean toward Arch Lending despite the higher APR. The common thread: understand what you are trading off before depositing assets.

Key Criteria When Comparing Crypto Lending Companies

Evaluate any platform across these five dimensions:

• Supported collateral: BTC and ETH are universal. If you hold SOL, XRP, or altcoins, check whether the platform accepts them, and at what LTV. Lower-cap assets face steeper haircuts.
• LTV ranges: Compare the maximum LTV for your specific asset. A platform advertising 90% LTV may only offer that on stablecoins, with Bitcoin capped at 50%.
• Custody model: Platform-held vs. qualified custodian. The latter reduces commingling risk but raises rates by 200-500 basis points based on observed market pricing.
• Liquidation mechanics: Partial vs. full liquidation. Notice period, if any. Penalty fees trigger at what LTV exactly.
• Regulatory posture: Is the platform registered with FinCEN as a money services business? Does it hold state lending licenses? Is it publicly traded (Coinbase) with SEC reporting obligations? These factors affect your recourse if something goes wrong.

Stablecoin Loans vs. Fiat Loans: Which Fits Your Needs?

Some platforms disburse loans in US dollars via bank transfer. Others disburse in USDC or USDT, stablecoins pegged to the dollar, which you then convert to fiat on an exchange.

The Federal Reserve reported that stablecoins grew approximately 50% in market capitalization during 2025, reflecting their deepening role in crypto credit markets (Federal Reserve FEDS Note, Carapella et al., April 2026). This growth matters for borrowers: deeper stablecoin liquidity means tighter spreads when converting USDC to dollars, and more platforms offering stablecoin-denominated credit lines.

A stablecoin loan can settle in minutes rather than the one to three business days typical of a bank wire. The cost is the conversion step, exchange fees plus potential slippage, and the fact that stablecoins themselves carry de-pegging risk. USDC briefly traded at $0.87 during the March 2023 banking crisis. The risk is small, but it is not zero.

Fiat loans avoid that conversion friction and land directly in your bank account. They also avoid the question of whether stablecoin interest or redemption gains create a separate taxable event. For most borrowers, the rate spread between the two options is modest, the decision comes down to speed and convenience rather than cost.

Bien que le concept de prêt sans garantie soit séduisant, il est important de se renseigner sur la réalité d'un Crypto Loan Without Collateral: What's Real in 2026.

Sources

• irs.gov
• sec.gov
• sec.gov
• sec.gov
• federalreserve.gov

The information provided here is general in nature and is not a substitute for advice from a licensed financial advisor. Review your situation with a professional before committing.