Bitcoin-backed loans could reach one trillion

According to Ledn, Bitcoin-backed loans could generate a 1 trillion dollar market in the coming decades.

Ledn is not a disinterested source, but the research it has published was conducted together with Protocol Theory, therefore it is worth analyzing. 

After all, using Bitcoin as collateral for a loan seems to make perfect sense, so the conclusions reached by this research could be interesting.

The research 

The research published by Ledn is a PDF of only seven pages whose objective is to quantify the gap between the demand for cryptocurrency-backed loans and their actual adoption, and to identify the factors that are holding it back.

The document in fact reveals that there is a clear discrepancy in the crypto market between the theoretical predisposition to request loans and the actual use of such services. 

For example, as many as 88% of cryptocurrency holders consider using a loan or a credit product to finance at least one planned purchase or investment, but only 14% use this service. The gap generated between the open-mindedness toward the instrument and its real adoption turns out to be as much as 6 to 1. 

The main brake on this adoption is not the lack of demand or understanding of the product, but a matter of security and trust. 

Among the most commonly cited barriers by non-users are concerns about managing crypto price volatility, those related to liquidation risk, and regulatory uncertainty. 

To unlock this market, users are asking for greater transparency on interest rates, liquidation mechanisms, and the security of the funds held in custody.

Bitcoin-backed loans

Bitcoin-backed loans, or loans backed by other cryptocurrencies, mirror a typical financial behavior of traditional finance, where capital is borrowed using, for example, real estate or stocks as collateral. 

The research by Ledn and Protocol Theory reveals that 72% of respondents agree that these loans offer convenient access to liquidity without the need to sell their assets. This allows investors to maintain long-term exposure to the cryptocurrency market while obtaining spendable capital in the short term.

Bitcoin-backed loans work by using BTC as collateral. 

To obtain such a loan, you must deposit Bitcoin into the lender’s wallet, which will be used by the lender as collateral for the loan. In return, the lender issues a loan in fiat currency or stablecoin, typically however only for 50%/70% of the value of the collateral deposited. 

Interest must be paid on the loan, generally between 5% and 15% per year of the amount received, and to get back the BTC deposited as collateral it will be necessary to repay all the capital borrowed plus the interest accrued. 

The key concept is Loan-to-Value (LTV), that is, the ratio between the loan obtained and the value of the collateral. 

The problem is that if, for example, the price of Bitcoin falls, the LTV of the loan worsens. If this ratio decreases to the point of risking becoming negative, the lender liquidates the BTC held as collateral (that is, sells them) in order to collect fiat currencies or stablecoins and extinguish the loan before it is too late. 

Since such liquidations are automatic and forced, the risk of completely and permanently losing the BTC put up as collateral becomes high if their market value falls.

In addition to this, there is always the risk related to custody security, given that they are in fact held in custody by a company or an external protocol. 

The main advantages are the possibility of not having to sell your BTC to obtain liquidity, the speed with which a loan can be obtained, and often no creditworthiness check. 

The market for Bitcoin-backed loans

All this specifically concerns the current situation. 

Collateral-backed loans in traditional financial markets already make up a market worth several trillions of dollars. 

Instead, the market for cryptocurrency-backed loans reached its all-time high in the third quarter of 2025, but only reaching less than 74 billion dollars. In other words, at the moment it is only a fraction of the collateral-backed loan market. 

If the brakes mentioned above were removed (or greatly reduced), this market could also come close to the volumes, for example, of the stock-backed loan market, and this could lead it to exceed 1 trillion dollars. 

However, to grow this much it will certainly take a lot of time, but it will also require two other factors. 

The first is greater regulatory clarity, since its lack turns out to be one of the main brakes on the adoption of these instruments. 

The second is a reduction in price volatility, especially in the medium to long term, since it is precisely volatility that generates the greatest liquidation risks. 

The problem, however, is that Bitcoin’s volatility is actually one of its greatest strengths, and although pretty much everyone expects a reduction in the volatility of its value in the long term, it still might not decrease enough to drastically cut the liquidation risks of BTC-backed loans.