Collateralized Loans in Crypto: How They Work and What You Need to Know

When you take out a collateralized loan, a type of loan where you pledge digital assets as security to borrow funds. Also known as crypto-backed loans, they let you access cash or stablecoins without selling your Bitcoin, Ethereum, or other holdings. This is the backbone of DeFi lending—no banks, no credit checks, just smart contracts that lock your crypto until you repay.

These loans rely on three key pieces: the asset you lock up (your collateral, crypto held as security for a loan), the amount you can borrow (usually 50-80% of its value), and the platform that manages the deal (like Aave, a leading decentralized lending protocol that allows users to borrow and lend crypto or MakerDAO, a system that issues DAI stablecoins backed by crypto collateral). If your collateral drops too far in value, the system automatically sells it to cover the loan. That’s why over-collateralization isn’t a bug—it’s the whole point.

Collateralized loans don’t just help people avoid selling during a dip. They’re used by traders to leverage positions, by investors to fund real-world expenses, and by early adopters to earn yield while holding. But they’re not risk-free. Volatility can trigger liquidations. Poorly designed platforms can have bugs or be hacked. And not all collateral is treated equally—some tokens are accepted at lower loan-to-value ratios because they’re less stable.

The posts below cover real examples of how these systems play out in the wild. You’ll find deep dives into top lending platforms like Aave and MakerDAO, breakdowns of how collateral ratios affect your position, and warnings about risky protocols that promised high returns but failed. Some posts even show how collateralized loans tie into bigger trends—like why privacy coins are getting delisted, or how wrapped assets like WBTC introduce new trust risks. Whether you’re new to DeFi or trying to avoid costly mistakes, this collection gives you the facts—not the hype.