A practical 2025 walkthrough on how to borrow against Bitcoin: compare DeFi and CeFi lenders, pick your LTV, execute the loan, and reclaim your BTC.
Arkadii Kaminskyi
Arkadii Kaminskyi
Head of Operations at Sats Terminal
Head of Operations at Sats Terminal with 5 years of experience in crypto. Specializes in DeFi, yield farming, and borrowing — has reviewed 50+ crypto products.
If you are holding Bitcoin and need liquidity, selling is rarely the right first move. Learning how to borrow against Bitcoin lets you unlock dollar-denominated cash without triggering a sale, without losing exposure to BTC, and without handing your coins to a middleman you cannot audit. The mechanics are not mysterious, but the decisions matter: which lender, what loan-to-value, which chain, variable or fixed rate, and how you plan to repay. This guide walks through the full lifecycle of a Bitcoin-backed loan in 2025, from the first question you should ask yourself to the final on-chain transaction that returns your BTC to your wallet. It is written for people who want to execute, not just read. If you want the broader market context first, start with the 2025 complete guide to Bitcoin borrowing.
Borrowing against Bitcoin is a specific financial transaction: you pledge BTC as collateral to a lender, and in exchange you receive a loan — almost always in stablecoins like USDC or USDT. You keep legal and economic ownership of the Bitcoin. The lender holds a claim on it only if you default or if the price falls far enough that the loan becomes undercollateralized. When you repay principal plus interest, you reclaim your BTC in full.
This is fundamentally different from selling. Selling realizes a capital gain or loss the moment the trade executes. Borrowing does not — the BTC remains yours on paper and on chain. That distinction is the entire reason the market exists. HODLers who believe BTC is going higher do not want to liquidate a long-term position for short-term cash needs. A collateralized loan solves that problem while keeping the upside intact.
There are three moving parts to understand before you go further: collateral, the loan-to-value ratio, and liquidation. Collateral is what you post. LTV is the size of the loan divided by the dollar value of the collateral at any given moment. Liquidation is what happens if LTV breaches a threshold the lender has set in advance. If you internalize those three concepts, the rest of the mechanics fall into place quickly.
For a longer primer on the mechanics, the how Bitcoin-backed loans work guide is a useful companion. The rest of this article assumes you understand the basics and want to actually execute a loan.
Preparation is where most first-time borrowers get tripped up. Take thirty minutes before you touch any interface and answer the following questions honestly. If you cannot answer them, you are not ready to borrow yet.
Write the answers down. A loan is a commitment with a clock on it — interest accrues every block. If any of the answers above are vague, the beginner's guide to borrowing against Bitcoin is a good place to slow down and think more carefully before moving on.
The operational prerequisites are short: a working email address, access to your BTC (whether in a hardware wallet, exchange withdrawal account, or self-custodial mobile wallet), a modern browser, and enough BTC to make the loan economically worthwhile after gas fees. On most DeFi chains in 2025, loans below $500 are usually not worth the on-chain costs. Above $2,000, fees become a rounding error.
You do not need KYC documents, a credit score, bank statements, or a lengthy application. That is one of the structural advantages of crypto-collateralized lending — the collateral itself is the underwriting. If a platform asks for intrusive documents for a purely overcollateralized loan, ask why.
Before you borrow, decide what the stablecoins are actually for. If you plan to off-ramp to a bank account, USDC on a chain your off-ramp supports is usually the cleanest path. If you plan to deploy the stablecoins into DeFi — lending them elsewhere, providing liquidity, or paying on-chain expenses — the destination chain matters more than the stablecoin symbol. Plan the full round trip before you originate the loan. It is much cheaper to pick the right chain once than to bridge stablecoins after the fact.
The biggest strategic decision in this entire process is whether to borrow from a DeFi protocol or a CeFi lender. Each model has a distinct risk profile, and the right answer depends on how you weight counterparty risk versus smart contract risk.
DeFi lenders — Aave v3 and Morpho Blue being the two most widely used for Bitcoin-backed loans — are non-custodial. Your wrapped BTC sits in an audited smart contract. The code enforces the loan terms. No human can seize, lend out, or rehypothecate your collateral. The tradeoff is smart contract risk and the sometimes-variable nature of DeFi rates.
CeFi lenders are companies. They hold your Bitcoin in their own custody, typically in an institutional wallet. Terms are enforced by contract law, not code. They can offer fixed rates, higher LTVs on niche assets, and customer support. The tradeoff is counterparty risk — you are trusting the lender to be solvent, honest, and operationally competent. The 2022–2023 cycle showed what happens when that trust is misplaced.
| Factor | DeFi (Aave, Morpho) | CeFi |
|---|---|---|
| Custody | Smart contract (non-custodial) | Lender holds collateral |
| KYC | Not required | Usually required |
| Rate type | Mostly variable | Often fixed |
| Rate range (typical, 2025) | ~4–10% APR on USDC | ~7–13% APR |
| LTV ceiling on wBTC | 70–80% (use far less) | Varies; often 50–60% |
| Liquidation mechanics | Automated, on-chain, partial | Manual or automated, varies |
| Primary risk | Smart contract, oracle | Counterparty solvency |
| Transparency | Fully on-chain | Depends on lender |
If you value self-custody and transparency above all else, DeFi is the default choice. If you want predictable fixed payments and are willing to accept counterparty risk to get them, CeFi becomes attractive. Many borrowers end up using both depending on the loan. The comparing DeFi vs CeFi lending guide goes deeper into the tradeoffs, and the full breakdown of how crypto lending works covers the underlying mechanics on both sides.
This is the operational section. Read it end to end before executing anything. Each step below has a decision embedded in it — do not rush past them.
That is the full operational sequence. Most borrowers are done within an hour, excluding Bitcoin confirmation time. The how does Borrow work FAQ covers the same flow from a support angle if you want a second read.
One of the more confusing aspects of a multi-step DeFi borrow flow is that you will sign several transactions, not one. A typical Bitcoin-backed loan on an EVM chain involves an approval for the wrapping contract, an approval for the lending protocol, a supply transaction, and a borrow transaction. Each one is a signed on-chain action that costs gas. Borrow batches and sequences these for you, showing what each one does in plain language before you sign, but the signatures themselves happen in your wallet, not on a company server. That is what non-custodial means in practice. If anything ever tries to execute without an explicit signature prompt, stop and investigate.
LTV is the single most important number on the loan screen. It determines how volatile your position is and how quickly you can move from "comfortable" to "liquidated." Learning how to borrow against Bitcoin responsibly is mostly learning to respect this number.
Start with the math. If BTC is at $70,000 and you post 1 BTC as collateral against a $35,000 stablecoin loan, your starting LTV is 50%. If the lender's liquidation threshold is 80%, BTC would need to fall to $43,750 (a 37.5% drop) before liquidation triggers. That sounds like a lot of room. It is, until you remember that BTC has dropped 30% in two weeks multiple times in its history.
For most borrowers, an initial LTV between 25% and 40% is the sweet spot. It gives you a meaningful loan relative to collateral, leaves substantial headroom for downside, and avoids the psychological stress of watching the liquidation price tick closer during normal volatility. The following table illustrates the liquidation buffer at different starting LTVs against a lender with an 80% liquidation threshold.
| Starting LTV | BTC drop to liquidation | Risk profile |
|---|---|---|
| 20% | ~75% | Very conservative |
| 30% | ~63% | Conservative |
| 40% | ~50% | Balanced |
| 50% | ~38% | Moderate |
| 60% | ~25% | Aggressive |
| 70% | ~13% | Very aggressive |
The dashboard shows your current LTV, collateral value, outstanding balance, and accrued interest in real time. Check it. The managing liquidation risk guide covers the monitoring practices in depth, but the short version is: know your liquidation price, set alerts 15–20% above it, and have a response plan ready. That plan has three levers — add more collateral, repay part of the loan to reduce LTV, or close the position entirely.
Borrow does not intervene automatically to prevent liquidation. That is by design — automatic intervention would require custodial control, which would defeat the point. Risk management is the borrower's job. Reducing it to a simple rule: never borrow at a starting LTV where a 30% BTC drawdown would liquidate you.
One of the simplest risk controls is keeping a dedicated stablecoin or BTC reserve specifically for loan maintenance. If BTC drops sharply, you do not want to be forced to sell spot at the worst possible moment to rescue a position. A small reserve — 10 to 20% of the loan size held as USDC or additional BTC — gives you the option to top up collateral or pay down principal without scrambling. Think of it as the margin account equivalent for a Bitcoin-backed loan. Most borrowers who get liquidated are not wrong about BTC direction over the long run; they simply did not have the liquidity on hand to weather a short drawdown.
Repayment is the half of the lifecycle that people forget to plan. A well-executed loan ends with the borrower reclaiming their BTC exactly as posted, having used the stablecoins productively and paid only the interest they planned to pay. A poorly-executed one drifts, accrues more interest than expected, and occasionally ends in liquidation not from price action but from inattention.
Most DeFi lending protocols allow partial repayment at any time. This is powerful. If you get a windfall, you can pay down half the loan, cut your LTV in half, and dramatically widen the liquidation buffer without closing the position. If you prefer, you can keep the loan open and let interest accrue against a smaller balance. The strategic repayment guide covers when each approach makes sense.
The operational flow is the mirror image of origination. You navigate to the active loan on your dashboard, specify an amount (or "max" to close), and approve the repayment transaction. The stablecoins are sent to the lending protocol, your debt position is reduced or closed, and if you close the loan fully, your wBTC, cbBTC, or BTCB is released from the smart contract. You then approve a final transaction to unwrap and bridge the BTC back to your Bitcoin address. The how to repay a loan on Borrow FAQ has a screen-by-screen walkthrough.
Interest on DeFi loans accrues per block, which on most chains means every few seconds. The balance you see in the UI is the exact amount owed at that moment. There are no surprise late fees, no grace-period tricks, no origination fees hidden in the fine print — the rate you see is the rate you pay. That transparency is one of the real structural advantages of on-chain lending over legacy finance. It also means that if you plan to keep a loan open for years, you should revisit it regularly; a rate that was 5% at origination can drift materially in either direction.
Borrow by Sats Terminal is an aggregator, not a lender. It does not issue loans. Instead, it connects to Aave v3, Morpho Blue, and selected CeFi providers and surfaces their live terms in a single interface so you do not have to open five tabs and reconcile five different UX conventions. The loan contract is always between you and the underlying lender — Borrow facilitates the comparison, the bridging, the wrapping, and the transaction approval flow.
Concretely, here is what Borrow handles versus what the lender handles. Borrow manages the email signup, the automatic Privy wallet creation, the Bitcoin deposit address, the cross-chain bridging, the wrapping into the correct BTC derivative for the chosen lender, the unified dashboard for monitoring, and the offer comparison. The lender — whether Aave, Morpho, or a CeFi partner — sets the rate, the max LTV, the liquidation threshold, and holds the smart contract or custodial position.
Because Borrow is non-custodial toward user funds, it cannot move your BTC or your stablecoins without an approved transaction. You sign every meaningful action. The architecture matches the one described in the full breakdown of how crypto lending works — aggregators add comparison and UX, but the custody and economic relationship sits with the underlying protocol or lender.
The practical benefit: when you are learning how to borrow against Bitcoin, you do not have to pick a lender before you know the options. You enter the collateral amount once, see every available offer side by side, and choose based on your priorities — rate, custody model, chain, or term structure.
Most mistakes fall into a small number of patterns. Reviewing them before your first loan is cheaper than learning them by hand.
The complete guide to Bitcoin borrowing has a longer version of this list with case studies. The short version is: respect the collateral, plan the repayment, and do not treat the maximum LTV as a target.
Common Questions
Technically, any amount, but the economics change with size. On Ethereum mainnet, loans smaller than roughly $1,000–$2,000 of collateral value can see gas fees eat into the benefit. On cheaper chains like BASE, Arbitrum, or Polygon, the effective minimum drops substantially and loans of a few hundred dollars become viable. Most first-time borrowers in 2025 work with collateral sizes between 0.05 and 1 BTC, which is plenty for meaningful loans without the liquidity or slippage concerns that affect larger positions. Borrow displays the estimated gas and bridging fees before you confirm, so the economics are always visible upfront.
