What is Crypto Lending?

As the blockchain industry matures, crypto lending has become a cornerstone of decentralized finance (DeFi), offering both investors and everyday users innovative ways to earn passive income and access liquidity without selling their digital assets. But what exactly is crypto lending, how does it work, and what should you know to participate safely in 2025’s dynamic crypto landscape?

Understanding Crypto Lending

At its core, crypto lending is a process where individuals lend their cryptocurrencies to others in exchange for interest payments. Unlike traditional lending, where banks act as intermediaries, crypto lending leverages decentralized platforms or specialized crypto service providers, reducing barriers to entry and creating new financial opportunities. In most cases, borrowers must provide collateral in the form of crypto assets, ensuring lenders are protected against default. If the borrower cannot repay, the collateral can be liquidated to cover the loan value.

For lenders, this presents a way to earn a yield on assets that would otherwise remain idle. For borrowers, it means gaining access to liquidity without needing to sell their coins—particularly valuable in a volatile market where they may wish to avoid triggering taxable events or missing out on future price appreciation. For a primer on the basic mechanics, see the overview from Embroker.

How Does Crypto Lending Work?

The crypto lending process typically involves the following stages:

• The borrower selects a platform and requests a loan, specifying the desired amount and asset type.
• The platform computes the required collateral, usually based on a loan-to-value (LTV) ratio—often between 30% and 70%.
• The borrower deposits the collateral.
• Lenders supply capital to the platform, which matches them with borrowers.
• The borrower receives the loan (in either crypto or fiat), pays regular interest, and, upon full repayment, regains access to their collateral.

Interest rates vary significantly, influenced by the platform, asset type, and market conditions. Rates for stablecoins tend to be higher—sometimes reaching double digits—while rates for more volatile cryptos may be lower. For a detailed comparison of current lending platforms and their rates, see this guide by CoinShares.

Types of Crypto Lending Platforms

There are three main models in crypto lending:

• Decentralized Finance (DeFi) Platforms: These utilize smart contracts to automate the lending process, removing the need for a trusted intermediary. Examples include Aave and Compound. DeFi lending offers transparency and flexibility but introduces risks like smart contract vulnerabilities and impermanent loss. In Q2 2025, DeFi platforms captured nearly 60% of the crypto lending market, reflecting user preference for open, permissionless protocols (Galaxy Research).
• Centralized Finance (CeFi) Platforms: These are managed by companies that facilitate lending and borrowing, often with a user experience similar to traditional banks. Examples include various regulated exchanges. While more user-friendly, CeFi introduces counterparty risk, as users must trust the platform to safeguard their assets.
• Hybrid and Institutional Models: Some traditional financial institutions and fintech firms now offer crypto-backed loans, blending regulatory oversight with blockchain technology for enhanced security and compliance. These models increasingly appeal to large investors and institutions.

What Makes Crypto Lending Attractive?

Crypto lending’s core benefits include:

• Passive Income: Lenders earn regular interest payments without relinquishing asset ownership.
• Liquidity Without Selling: Borrowers can unlock capital from their crypto holdings without triggering taxable events.
• Speed and Accessibility: Most platforms offer quick onboarding and minimal paperwork.

Additionally, the emergence of multi-signature custody and transparent on-chain processes have boosted trust and accessibility, especially for larger borrowers and institutional clients (Milo blog).

Key Risks and Considerations

Despite its appeal, crypto lending carries distinct risks:

• Market Volatility: Crypto asset values can fluctuate rapidly, triggering liquidations if collateral falls below required thresholds.
• Platform Risk: CeFi platforms can fail or mismanage funds. DeFi platforms are subject to smart contract bugs or hacks.
• Regulatory Uncertainty: In many jurisdictions, crypto lending is subject to evolving regulations, which can affect platform operations and user protections. For regulatory guidance and current trends, refer to this joint EBA-ESMA report (PDF).

Before participating, users should:

• Conduct due diligence on any lending platform.
• Understand the terms of collateralization and liquidation.
• Consider the security of their assets—self-custody, such as through a hardware wallet, can provide additional protection.

Latest Developments in 2025

• The DeFi lending sector grew by 42% in Q2 2025, hitting an all-time high of $26.5 billion in on-chain collateralized loans (Galaxy Research).
• Institutional involvement is rising, with more companies using crypto-backed loans for treasury management and capital efficiency.
• Security innovations are ongoing, with platforms adopting robust multisig custody and risk management frameworks.

How Can OneKey Users Benefit?

Security is paramount in crypto lending—especially when pledging valuable assets as collateral. Using a secure hardware wallet like OneKey enables users to:

• Safeguard collateral from unauthorized access or online threats.
• Sign transactions and interact with DeFi platforms directly from a cold storage environment.
• Maintain full control over their assets, even when participating in complex lending protocols.

By combining the flexibility of crypto lending with the robust protection of OneKey, users can participate in cutting-edge DeFi without compromising security or peace of mind.

For users exploring crypto lending, integrating a trusted hardware wallet into your security strategy is not just recommended—it's essential to long-term safety and asset preservation.