Crypto-Backed Loans: How They Work and Where They Break

Russia's largest state bank announced it will accept Bitcoin, Ether and the USDT stablecoin as collateral. Sber's Deputy Chairman Anatoly Popov said the products are ready and only need adapting to the law that took effect on September 1.

For the market that is a move out of the grey zone and onto a regulated shelf. Here is how crypto-backed loans actually work, what sets the rate, when liquidation kicks in, and where a bank offer differs from the online platforms that have been doing this for years.

What Sber said

The position comes down to three points.

• The collateral list matches what the central bank cleared for trading: Bitcoin, Ether and USDT.
• The launch is tied to the moment the regulator permits public circulation of those assets.
• Nothing gets built from scratch - the bank extends existing lending products.

The statement is not empty. Last December Sber reported issuing a loan to mining company Intelion Data secured by cryptocurrency. Before that it listed bonds on the Moscow Exchange whose yield tracks the ruble price of Bitcoin, and by December 1 it plans to open a digital depositary and launch its own wallet inside its apps.

How crypto-backed loans work

Crypto-backed loans are simpler than the jargon suggests. The borrower hands coins to the lender, who locks them at an address or with a custodian and releases cash. While payments continue the collateral sits untouched; once the debt is cleared the coins come back.

The key parameter is LTV - the ratio of the loan to the value of the collateral. If your coins are worth 1,000,000 rubles and LTV is 50%, you receive 500,000. The lower the LTV, the calmer both sides: the lender keeps a buffer against a drawdown, the borrower keeps room before a forced sale.

The second parameter is the margin call threshold. When the price falls, collateral value drops, LTV climbs, and at a defined level the lender demands more coins or partial repayment. Ignore it and liquidation begins - the collateral is sold to cover the debt.

How this differs from an ordinary consumer loan

Three places.

1. The collateral is volatile. An apartment does not lose 30% in a month; crypto does it routinely.
2. Speed of decision. A lender looks at the asset as much as at your income; on crypto platforms the assessment takes minutes.
3. Consequences of default. With a classic loan a long collection process begins. Here the collateral is sold almost immediately.

Who holds the collateral

Three typical arrangements:

• The lender holds the coins. Fast, but you carry the platform's own risk.
• A custodian or depositary. Slower and pricier, yet the collateral sits apart from the lender's balance sheet.
• A multisignature address. Nobody moves the coins alone.

For bank products expect the second option - which is exactly why Sber talks about a digital depositary as part of the plumbing.

How the collateral is valued

The number your LTV is calculated from does not come out of thin air, and the contract spells it out. Check three things.

Price source. Some lenders take a single exchange, others a median across venues. A median is sturdier: one wick on a thin market will not trigger a forced sale.

Revaluation frequency. Collateral may be repriced every minute, every hour or twice a day. The rarer it happens, the smaller the chance a brief flush knocks you out - and the bigger the risk that an already completed drop catches you late.

Haircut. Many lenders value collateral below spot, by 5-15%, as protection against slippage in a rushed sale. Borrowers usually discover the haircut after the fact, when the disbursed amount is smaller than expected.

Ask separately how the system behaves on weekends: a 24/7 market meets a business-hours support desk.

What sets the rate

A rate on crypto-backed loans is always higher than on property-secured debt, and it is assembled from several parts.

• Cost of funding. The central bank's key rate sets the floor.
• Volatility premium. The sharper the asset swings, the higher the rate and the lower the permitted LTV.
• Operational cost. Custody, insurance and compliance are priced in.
• Liquidity risk. If the asset is hard to sell quickly, add a few more points.

Online platforms usually publish the rate up front and scale it by LTV: borrow less against your collateral and pay less. Regulated lenders price individually, and first-generation products will almost certainly cost more than ordinary corporate credit.

Liquidation: the risk that actually hurts

This is where people lose money on crypto-backed loans - not on interest.

Picture it. You borrow against coins worth 2,000,000 rubles at 50% LTV, so you receive a million. The market falls 35%, the collateral is now worth 1,300,000, LTV passes 75%, and the lender starts the procedure. Part of the position is sold into a falling market, the debt closes, the remainder comes back - but the asset is gone at the worst point of the cycle.

What lowers the odds of that ending:

• a conservative LTV - 25-30% instead of the maximum on offer;
• a stablecoin reserve ready for a top-up;
• alerts as the threshold approaches;
• a short term, so the risk horizon is weeks rather than years.

One thing to internalize: during liquidation the lender is not hunting for a good price. It is closing its own exposure, selling into whatever book exists at that hour.

What to do on a margin call

A top-up demand is a fork with three exits, not a verdict.

1. Add collateral. Cheapest if you kept a reserve. This is exactly why experienced borrowers hold stablecoins separately from what they pledged.
2. Repay part of the debt. LTV falls because the loan shrinks. Costlier than the first option, but it does not require buying the asset in a falling market.
3. Do nothing. The collateral gets sold. Occasionally that is a deliberate choice - if you expect the decline to continue, taking the loss now may be cheaper.

The worst decision is waiting until the final hour and then scrambling for cash. Decide in advance at which price you top up and at which you close out.

Bank or online platform

Crypto-backed loans have been available on specialized platforms for years, and the comparison is not one-sided.

Platforms release funds in minutes, ask for no paperwork and accept dozens of assets. In exchange you take on their solvency risk: the collateral sits with them, and if they fail you join the queue of creditors.

Regulated lenders offer legal certainty, insurance and a defined dispute process. In exchange: identification, reporting, a narrow asset list and, at least initially, a higher rate.

There is also a third path - do not borrow at all. Sell part of the position and buy back later, checking rates and fees before you do. It loses on taxes but carries no forced-sale risk.

What the lending cycle taught the market

The 2022 cycle ended with several large crypto lenders in bankruptcy, and those lessons still hold.

• Collateral pooled with everyone else's stops being yours. If the service may rehypothecate client coins, its collapse puts you in the general creditor queue.
• Above-market yield means your coins are working. The money is earned by lending them onward.
• Reserve transparency beats interface polish. Proof of reserves is basic hygiene, not a marketing extra.

Regulated lending differs precisely here: custody rules are fixed in advance and disputes follow a known procedure.

Why only Bitcoin, Ether and USDT

The list was set by the central bank, not by Sber. Three instruments were cleared for public circulation, selected on market capitalization, trading volume and at least five years of price history on overseas markets.

That five-year filter removes nearly everything launched in the last two cycles regardless of liquidity, so the collateral shelf starts narrow.

The sanctions footnote around USDT

The regulator has repeatedly flagged that a dollar stablecoin issued by an American company can be frozen by its issuer. Sber itself has been under blocking sanctions from the United States, the European Union and other countries since 2022.

The result is a structure where a sanctioned lender builds custody and credit on top of an instrument carrying its own sanctions exposure. For a borrower the rule is simple: stablecoin collateral carries issuer risk on top of market risk.

Who this actually suits

Scenarios where borrowing against coins is reasonable:

• A holder who does not want to sell. Expecting appreciation while needing cash now.
• Tax motive. A sale crystallizes a result; a loan does not.
• Business cash gap. A company with crypto revenue closes the month without unwinding its position.
• Miners. Equipment pays back over months while revenue arrives in coins - collateralized funding is already standard practice there.

Who should stay away: anyone planning to buy more of the same asset with the proceeds. That is a doubled bet on one direction, and a drawdown brings both a loss and a top-up demand.

What to check before signing

Seven points, in order.

1. Margin call and liquidation thresholds - in percent and in an actual price.
2. Who holds the collateral - lender, custodian or multisig.
3. Which price feed is used and how often it refreshes.
4. Term and early repayment without penalty.
5. Fees beyond the rate - origination, custody, conversion, release.
6. What happens if trading halts in the asset.
7. Whether the lender may use your coins during the term. That clause is either in the contract or it is not.

Also confirm whether interest accrues on the full limit or only on the drawn amount. The difference in total cost reaches tens of percent.

Taxes and paperwork

Two questions that come up constantly.

Taxes. Borrowed money is not income, so the loan itself creates no tax event. The obligation appears when coins are sold - whether you sold them or the lender did during liquidation. That is why the tax argument for borrowing does not always hold: in a bad scenario you get the loss and the taxable event together.

Paperwork. A regulated lender adds proof of the coins' origin to the usual package. Compliance needs to see the asset did not arrive from a sanctioned or otherwise flagged address. Collect address statements and purchase confirmations in advance - this is where applications stall more often than on the numbers.

The bottom line

Russia's market is only opening, and early offers will be cautious: low LTV, high rate, a narrow circle of borrowers. Conditions soften as statistics accumulate - that is how every market behaved when lenders met a new collateral class.

The conclusion is unglamorous. Crypto-backed loans suit people who understand liquidation mechanics and hold a reserve for top-ups. For everyone else, selling part of the position is cheaper.