Loan is an integral part of the economy that has helped nations, businesses, and individuals rise for centuries if used properly. However, most people are familiar with credit in the form of centralized banks and mostly in the form of USD and other national currencies. But for DeFi to become a full-fledged economic framework, the emergence of credit mechanisms was inevitable — and by now, several functional implementations are in place.
But it works a bit differently than in TradiFi, and here we will go into more detail on how crypto lending works, the difference DeFi vs centralized crypto lending, and what secure crypto borrowing platforms there are today.
What Are the Advantages of Crypto Lending and Borrowing?
Some may ask why crypto loans are needed instead of the usual TradiFi loans from classic banks. There are several reasons for this.
Institutional Bias
Banks are not always fair in deciding who to lend to or not. Of course, we are not talking about cases of outright unreliability, but on average, a bank may not give a loan to someone who could use it very well and return the loan on time and in full. DeFi mitigates this issue by removing human discretion and enabling access to credit based on objective, algorithmically enforced conditions.
Banks Non-Transparency
Banks apply opaque decision-making criteria, often relying on proprietary risk models that are inaccessible to applicants. You don’t know until the end why the bank denied your loan and what exactly you need to do to fix it. DeFi protocols are fully transparent: Loans are issued according to publicly auditable smart contracts with predefined parameters.
Banks Limitations
In the case of classic banks, you have very limited options. All of them have approximately the same conditions, and there is no fundamental difference in which bank to borrow from. You can only borrow from a small list of traditional currencies, which is also quite limited. Also, banks often share the same data about borrowers, and if you are denied by one bank for any reason, you most likely will be denied by the rest. DeFi provides a much larger selection of different platforms, mechanisms, and offers that can be much more convenient for a variety of user scenarios.
It Is Impossible to Make a Profit From Loans
In TradFi, loan issuance is typically restricted to licensed financial institutions, and yield generation is not accessible directly to retail users. Sure, you can get interest from your deposit, but those are pretty limited options too and not the most direct ones. You don’t decide how the bank manages your money, who to lend to, and so on. DeFi allows you to lend on your own, choose transparent terms, and have a pretty wide range of choices in doing so.
How Crypto Lending Works?
So, the foundation of cryptocurrency lending is a model of overcollateralized loans, in which a user provides a digital asset as collateral and receives a loan in another cryptocurrency or stablecoin. Such an architecture is necessary due to the lack of creditworthiness assessment mechanisms in the blockchain environment: all loans are a priori considered unreliable if they are not secured by an asset whose value exceeds the loan amount.
However, there is a principle difference between DeFi vs centralized crypto lending, as these are two different architectural solutions that have different mechanisms for interacting with users and securing assets.
In decentralized protocols (DeFi) such as Aave, Compound, Morpho Blue, or FraxLend, the entire lending process is automated through smart contracts. This means that the user interacts directly with the protocol: deposits collateral, initiates a loan, receives tokens or stablecoins, and then repays the loan or replenishes collateral as needed. All actions are recorded on the blockchain, ensuring complete transparency.
Key parameters when lending with DeFi:
- LTV (Loan-to-Value) is the ratio of the loan amount to the value of the collateral. LTV is usually capped at 50-75%.
- Liquidation Threshold – the level at which the collateral is subject to partial or full liquidation.
- Interest Rate Model – dynamically changing interest rate depending on market demand and supply of liquidity.
In centralized platforms (CeFi), the principles remain similar, but the management of the process is outsourced to a centralized organization.
Platforms like Nexo, Ledn, YouHodler, or Binance offer loans in fiat currency or crypto against digital assets. They manage risk through internal liquidation mechanisms and sometimes insurance funds. These services typically require KYC and offer fixed rates.
The main difference in CeFi is that users do not interact with on-chain smart contracts but instead entrust asset custody and execution logic to the platform. This carries TadiFi risks into risks of crypto lending and borrowing associated with trusting a centralized provider but simplifies the experience and provides many more options compared to traditional banks.
Best Crypto Lending Platforms 2025
When it comes to choosing the best crypto lending platforms 2025, it’s important to first focus on well-established secure crypto borrowing platforms that offer maximum transparency and fair options. However, depending on your preferences and use cases, you may consider either decentralized (DeFi) or centralized (CeFi) solutions. In any case, both types enable borrowing crypto without selling your assets and earning interest on crypto you already hold.
Aave (v3)
Aave remains the largest decentralized protocol for crypto lending and borrowing platforms. Version 3 introduced significant improvements in capital efficiency, asset isolation, and cross-chain functionality. The platform supports multiple networks, including Ethereum, Arbitrum, Polygon, and Avalanche.
- Collateral requirements in crypto loans: Up to 80% LTV for stablecoins, 70–75% for ETH.
- Rates: Both variable and stable; typically 2–5% APY on USDC/DAI loans.
- Key features: Flash Loans, eMode for optimized collateral use, per-asset risk isolation, and DAO governance.
- Lending crypto for passive income: Users can earn passive income by supplying liquidity to the protocol and receiving aTokens as interest-bearing representations.
Compound III (Comet)
Compound’s latest iteration, known as Comet, focuses on reducing gas fees and enhancing risk control through simplified asset pools. Unlike earlier versions, Compound III isolates each market around a single base asset, improving predictability and reducing systemic risk.
- Collateral requirements in crypto loans: LTV ranges from 60–75%, depending on the collateral type.
- Governance: Managed via Compound DAO using the COMP token.
- Crypto loans explained: Comet contracts enable modular risk management and permissionless market deployments.
Morpho Blue and Morpho Optimizers
Morpho takes a unique hybrid approach by combining pooled liquidity with peer-to-peer matching. The new Morpho Blue protocol allows users to build custom lending markets with configurable risk parameters—something previously unavailable in standard DeFi vs centralized crypto lending setups.
- Yield: Often higher than traditional DeFi lending rates due to efficient matching.
- Risk exposure: Varies based on market configuration (oracles, LTV, liquidation curves).
- Distinctive edge: Modular design gives institutions more control over how crypto-backed loans are structured.
MakerDAO and DAI Vaults
Maker offers collateralized debt positions (CDPs) where users can lock ETH, stETH, WBTC, and other tokens to mint DAI—a decentralized stablecoin. Maker’s model has become a standard for crypto lending with stablecoins and overcollateralized loans in DeFi.
- Collateral requirements in crypto loans: Max LTV up to 66%, varying by vault type.
- Stability fees: Can be fixed or variable, depending on market and vault configuration.
- Governance: Fully decentralized via MKR token holders, with interest rate changes voted on-chain.
Leading CeFi Platforms for Crypto-Backed Loans
Centralized crypto lending and borrowing platforms offer a smoother onboarding process, often with fixed rates and integrated fiat services. While they require KYC and involve custodial risk, they remain viable for users who prefer convenience and broader asset support.
Nexo
Nexo offers crypto-backed loans, interest-bearing accounts, and real-time credit lines for BTC, ETH, and stablecoins. The platform includes a loyalty system that affects interest rates and lending limits.
- Collateral requirements in crypto loans: Up to 50% LTV for BTC/ETH, up to 90% for stablecoins.
- Borrowing rates: From 0% to 13.9% APR depending on loyalty tier and NEXO token staking.
- Security: Assets are insured via custodial partnerships; platform also offers cashback cards and flexible repayment terms.
- Secure crypto borrowing platforms: Nexo emphasizes insured custody and institutional compliance.
Ledn
Ledn is a Canadian-regulated CeFi platform focused on BTC and USDC. It offers simple, high-LTV loans and interest-earning accounts, targeting conservative users.
- Collateral requirements in crypto loans: LTV fixed at 50%.
- Borrowing rate: ~9.9% APR.
- Crypto interest accounts comparison: Up to 7.5% APY on USDC deposits; BTC accounts also available.
- Compliance: Registered with FINTRAC, emphasizing regulatory clarity.
Binance Earn
Binance Earn is a crypto lending and borrowing platform integrated into the world’s largest exchange. It offers flexible, fixed, and structured products across dozens of supported assets, including ETH, BTC, BNB, and USDT.
- Lending and borrowing: Users can deposit to earn or take crypto-backed loans directly from their spot balances.
- Customization: Multiple crypto interest accounts comparison options based on lock-up duration, asset type, and liquidity demand.
- Access: Native integration into Binance UI makes it easy for spot traders and long-term holders alike.
YouHodler
YouHodler is a CeFi platform with advanced features like “Turbocharge” loans—automated multi-step borrowing loops designed to maximize available liquidity.
- Collateral requirements in crypto loans: Max LTV up to 90% depending on asset.
- Loan terms: From 0% to 12% APR; interest accounts earn up to 10%.
- Supported assets: Over 30 cryptocurrencies, including altcoins often ignored by other platforms.
- Risks: Registered in Switzerland but lacks on-chain auditability, introducing custodial opacity—relevant in the context of risks of crypto lending and borrowing.
Speaking of the most secure and reliable platforms, we can’t fail to mention WEEX, which gives multiple options for conversion, spot crypto trading, crypto futures trading, crypto staking, and more – while being fully certified to operate in the US, Canada, Europe, and other strict jurisdictions.
Did you know WEEX is offering a 50% deposit bonus? Deposit and get a 50% bonus, up to 1,000 USDT. It’s a great way to increase your trading potential—make sure to take advantage before the offer ends!
Use the special link and empower your trading experience with WEEX.
Conclusion
As you’ve seen from the platforms discussed, there’s a much wider variety of options available here—far more diverse than the nearly identical terms offered by most traditional banks. Each of these solutions may be more or less convenient depending on your specific use case, and many have unique features that should be considered separately.
Before choosing any particular platform, you should take the time to thoroughly understand all aspects of the mechanisms and services they provide, while also keeping in mind the overall state of the crypto market. In this space, you’re not only given more opportunities—but also more responsibility.
