How crypto-backed loans work

You transfer collateral — typically Bitcoin, Ethereum, a major stablecoin or tokenised gold — into a custody address held for your loan. The lender values it at the live market price and advances a percentage of that value as the loan principal. That percentage is the loan-to-value ratio, and it is the single number that governs everything else about the loan.

Interest accrues on the outstanding principal, usually daily. You can repay early, in part or in full, at any point; when the balance reaches zero the collateral is released back to your account. Because the loan is secured, there is no credit-score assessment in the conventional sense — the collateral is the underwriting.

• Pledge collateral into custody
• Receive principal in fiat or stablecoins
• Interest accrues daily on the outstanding balance
• Repay in full or in part, then collateral is released

The most common reason is that selling ends the position. If you expect an asset to appreciate, disposing of it to raise cash means buying back later at an unknown price. A loan raises the cash while keeping the exposure.

The second reason is timing. Selling a long-held asset can be a taxable disposal in most European jurisdictions, while drawing a loan against it generally is not — though the treatment depends entirely on your country and your circumstances, and this is not tax advice. Borrowers commonly use the proceeds for a property deposit, a business cash-flow gap, or a bridging need where a few months of liquidity solves the problem.

If you pledge 100,000 EUR of Bitcoin and borrow 40,000 EUR, the loan starts at 40% LTV. As the collateral price falls, that ratio rises: the same loan against 60,000 EUR of Bitcoin is at 67% LTV. Lenders set a margin-call level and a liquidation level above the starting ratio, and the distance between your starting LTV and those levels is your buffer.

A conservative starting LTV is not a technicality — it is the difference between a price drop being uncomfortable and being terminal. Borrowers who start at 25-35% survive drawdowns that liquidate borrowers who started at 60% on the same asset.

When the LTV crosses the margin-call level, you are notified and asked to restore the buffer — either by adding collateral or by repaying part of the principal. There is normally a defined window to act. If the ratio continues to rise past the liquidation level, enough collateral is sold to bring the loan back within limits.

Liquidation is not a penalty the lender wants to apply; it is the mechanism that keeps the loan secured. The practical defence is monitoring: know your current LTV, know the two thresholds, and keep spare collateral or cash available to top up quickly.

Ask where the collateral is held and whether it is rehypothecated — that is, lent on to someone else. A lender that reuses your collateral introduces a counterparty risk that has nothing to do with the price of the asset, and it is the single most common reason borrowers lost coins in past market cycles.

Then check the pricing source used for valuation, the notice period on a margin call, whether interest is fixed or floating, and whether early repayment carries a fee. At The Vision Bank, collateral is held in segregated custody and is not lent out, loan-to-value bands are published, and the fee schedule applies without conditional footnotes.