Onchain collateral is crypto held directly on-chain and preferred for crypto-backed loans because it enables 24/7 liquidation, greater liquidity and higher loan-to-value (LTV) ratios. Lenders can execute margin calls in real time, reducing counterparty and market-timing risk for both banks and borrowers.
Onchain collateral allows real-time liquidation and higher LTVs.
Banks and digital-asset lenders favor tokens over ETFs due to continuous market access and clearer settlement mechanics.
Figure Technology’s Nasdaq debut and TradFi interest (JP Morgan plans under review) show institutional momentum; market data: lending activity fell sharply in 2022, then gradually recovered.
Onchain collateral: banks prefer direct crypto tokens for 24/7 liquidation and higher LTVs — read expert analysis and practical steps for borrowers.
The 24/7 nature of onchain markets makes spot crypto collateral preferable to lenders than crypto held in investment vehicles like ETFs.
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Summary: Fabian Dori, chief investment officer at digital asset bank Sygnum, says banks offering crypto-backed loans prefer onchain assets as collateral because they are more liquid and can be liquidated 24/7, enabling more competitive loan-to-value (LTV) structures for borrowers.
What is onchain collateral and why do lenders prefer it?
Onchain collateral is crypto held in wallets or smart contracts that can be monitored and liquidated on public blockchains. Lenders prefer it because it enables continuous price discovery, immediate margin execution and reduced settlement friction compared with exchange-traded funds or off-chain vehicles.
How does onchain collateral affect loan-to-value (LTV) ratios?
LTV measures loan size versus collateral value. Because onchain assets are tradable 24/7, lenders can reduce liquidation risk and therefore offer higher LTVs. This improves borrower access to credit while keeping lender risk controls, such as automated margin calls and real-time monitoring, intact.
How did crypto lending change after 2022 and what does market data show?
Centralized crypto lending contracted sharply in 2022 after multiple platform failures. Activity has since recovered as risk frameworks improved and regulatory clarity advanced. Public events — including companies listing on exchanges and TradFi firms signalling interest — indicate gradual institutional re-entry to secured crypto lending.
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24/7 liquidity allows lenders to react instantly to price moves, reducing the window for losses from rapid volatility. For borrowers, this means loan terms can be more competitive because the lender’s liquidation risk is lower when collateral can be converted at any hour.
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