How to Read and Compare Crypto Loan Offers

Why Comparing Loan Offers Matters

Not all crypto loans are created equal. Two offers might both let you borrow against Bitcoin, but the differences in interest rates, collateral requirements, liquidation terms, and fees can mean thousands of dollars in savings — or costs — over the life of a loan.

In traditional finance, shopping around for the best mortgage or car loan rate is standard practice. The same principle applies in crypto, but with added complexity: you are comparing across different protocols, blockchains, and fee structures.

Borrow by Sats Terminal simplifies this by aggregating offers in one place, but understanding what each number means will help you make the best decision for your specific situation.

The Key Components of a Crypto Loan Offer

Every crypto loan offer contains several critical parameters. Let us break down each one.

Interest Rate (Borrowing Rate)

The interest rate — also called the borrowing rate — is the ongoing cost of your loan, expressed as an annual percentage.

Types of rates:

• Variable rate — Changes based on supply and demand in the lending pool. Most DeFi protocols use variable rates. When demand to borrow increases, rates go up; when demand decreases, rates go down.
• Fixed rate — Stays the same for the duration of the loan. Less common in DeFi, but some protocols offer it.
• Tiered rate — Some CeFi platforms charge different rates based on loan size or customer tier.

What to watch for:

• A low rate today does not guarantee a low rate tomorrow if the rate is variable. Look at historical rate data when available.
• Some protocols display rates as APR (Annual Percentage Rate), while others use APY (Annual Percentage Yield), which accounts for compounding. A 5% APY costs more than a 5% APR because of this compounding effect.
• The spread between what depositors earn and what borrowers pay can indicate how efficient a protocol is.

For a deep dive into how interest rates work in crypto, see our guide on understanding interest rates.

Loan-to-Value (LTV) Ratio

The loan-to-value ratio defines the maximum amount you can borrow relative to the value of your collateral.

Example:

• Collateral value: $50,000 (1 BTC at $50,000)
• Maximum LTV: 75%
• Maximum borrow: $37,500

What to watch for:

• Higher max LTV means you can borrow more, but that does not mean you should. A higher LTV leaves less room before liquidation.
• Different protocols offer different max LTVs for the same asset. Aave v3 might offer 73% for WBTC while Morpho Blue offers 77% on a specific market.
• The "recommended" or "safe" LTV is typically much lower than the maximum — usually 40-60%.

For a thorough explanation, see our guide on understanding collateral and LTV.

Collateral Factor

The collateral factor is closely related to LTV but expressed differently. It represents the percentage of your collateral's value that the protocol counts toward your borrowing capacity.

• A collateral factor of 0.75 means the protocol values your $50,000 in Bitcoin as $37,500 of borrowing capacity.
• This is functionally the same as a 75% max LTV but is the terminology some protocols prefer.

What to watch for:

• Collateral factors can differ for the same asset across protocols and even across markets within the same protocol.
• Some protocols apply a "liquidation bonus" or "close factor" on top of the collateral factor, which affects your effective cost if liquidated.

Liquidation Threshold and Penalty

The liquidation threshold is the LTV level at which the protocol begins liquidating your collateral. This is different from the maximum LTV — the max LTV is how much you can borrow, while the liquidation threshold is the point of no return.

Example:

• Maximum LTV: 75%
• Liquidation threshold: 82.5%
• You borrow at 75% LTV. Bitcoin drops in price, pushing your LTV to 83%. The protocol begins liquidating.

Liquidation penalty: When liquidation occurs, the protocol does not just sell enough collateral to cover the debt. It sells additional collateral as a penalty — typically 5-10%. This penalty incentivizes borrowers to manage their positions and compensates the liquidators who execute the process.

What to watch for:

• The gap between max LTV and liquidation threshold is your safety buffer. A wider gap gives you more time to react.
• Liquidation penalties vary significantly between protocols. A 5% penalty on a $50,000 position costs $2,500 — not trivial.
• Some protocols liquidate your entire position; others only liquidate enough to bring your LTV back to a safe level (partial liquidation).

Supported Collateral Types

Different protocols accept different forms of Bitcoin as collateral:

• WBTC (Wrapped Bitcoin) — The most widely accepted form of Bitcoin in DeFi, backed 1:1 by BTC held in custody.
• cbBTC (Coinbase Wrapped Bitcoin) — A newer wrapped Bitcoin issued by Coinbase.
• BTCB — BNB Chain's wrapped Bitcoin.
• tBTC — A decentralized, trust-minimized wrapped Bitcoin.

What to watch for:

• Not all wrapped Bitcoin is equal. Each has its own trust assumptions and custodial model.
• Some protocols offer better terms for specific wrapped Bitcoin variants.
• Liquidity varies — the most liquid markets typically offer better rates and lower slippage during liquidation.

Network and Gas Costs

A loan offer does not exist in isolation — it lives on a specific blockchain, and the transaction costs of that blockchain directly affect your total cost.

What to watch for:

• An offer on Ethereum mainnet with a 3% interest rate might cost more in total than a 4% offer on Arbitrum, once you factor in gas fees for depositing, borrowing, repaying, and withdrawing.
• Layer 2 networks (Arbitrum, Optimism, Base) are generally 10-50x cheaper for gas than Ethereum mainnet.
• For small loans, gas fees can represent a significant percentage of the borrowed amount. Factor this into your comparison.

For more on how gas costs affect your borrowing, see our guide on understanding gas fees.

How to Compare Offers: A Practical Framework

When evaluating multiple crypto loan offers, use this framework:

1. Calculate Total Cost of Borrowing

The most important comparison is total cost, not just the interest rate. Include:

• Interest cost — Annual rate x amount borrowed x expected loan duration.
• Gas fees — Cost of deposit, borrow, repay, and withdraw transactions.
• Potential liquidation penalty — The cost if things go wrong.

Example comparison:

Despite the higher interest rate, Offer B costs less overall because of dramatically lower gas fees. For smaller loans, this difference becomes even more pronounced.

2. Evaluate Safety Margins

Compare the gap between maximum LTV and liquidation threshold across offers. A wider gap means more time to react if prices move against you.

Also consider how much Bitcoin would need to drop to trigger liquidation at your chosen LTV:

• At 50% LTV with an 82.5% liquidation threshold, Bitcoin needs to drop about 39% before liquidation.
• At 70% LTV with the same threshold, Bitcoin only needs to drop about 15%.

3. Assess Protocol Risk

Not all protocols carry the same risk profile:

• Audit history — Has the protocol been audited by reputable security firms? How many times?
• Track record — How long has the protocol been operating? Has it ever been exploited?
• Total Value Locked (TVL) — Higher TVL generally indicates more community trust and better liquidity.
• Governance — How are protocol parameters (rates, LTVs) set and changed?

4. Check Rate Stability

If an offer has a variable rate, look at historical rate data:

• What has the rate averaged over the past 30/90/180 days?
• What was the peak rate during volatile periods?
• How quickly do rates change — gradually or in sharp spikes?

A protocol with a stable 4% rate may be better than one that averages 3% but spikes to 15% during market stress.

5. Review Withdrawal Flexibility

Consider how easily you can exit your position:

• Can you repay at any time, or are there lock-up periods?
• Are there early repayment penalties?
• How quickly is collateral returned after repayment?

Most DeFi protocols allow instant repayment and withdrawal, but some CeFi platforms impose lock-ups or processing delays.

How Borrow by Sats Terminal Helps You Compare

Borrow by Sats Terminal is purpose-built for this comparison process. Here is what makes it useful:

Side-by-Side Comparison

Borrow aggregates offers from multiple DeFi protocols (Aave v3, Morpho Blue, and others) and presents them in a unified interface. You see interest rates, LTVs, and key terms without needing to visit each protocol individually.

Cross-Chain Visibility

Offers from different blockchains appear together, so you can compare an Ethereum mainnet offer against an Arbitrum offer without switching between different interfaces.

Self-Custodial Execution

When you find the right offer, you execute directly through your embedded Privy wallet. Your funds never pass through Sats Terminal — you interact directly with the lending protocol's smart contract.

No Bias

Borrow does not operate its own lending protocol. It has no incentive to push you toward a specific offer. The platform aggregates objectively, letting you make the best choice for your situation.

To learn more about how the aggregation works, see our FAQ on how Borrow aggregates lending offers.

Red Flags to Watch For

When evaluating any crypto loan offer — on Borrow or elsewhere — watch out for these warning signs:

Unusually Low Rates

If a rate seems too good to be true, investigate why. It might be a promotional rate that expires, a new protocol trying to attract users with unsustainable economics, or a platform subsidizing rates with venture capital.

No Audits

Any lending protocol that has not been professionally audited is a significant risk. Smart contract vulnerabilities can lead to loss of your collateral. Stick to well-audited protocols with established track records.

Opaque Terms

If you cannot clearly see the liquidation threshold, penalty, and fee structure, that is a red flag. Transparent protocols display all parameters openly and explain how they work.

Custodial Requirements

If a platform requires you to hand over your Bitcoin to a company rather than a smart contract, you are introducing counterparty risk. This is especially important given the history of CeFi lending platform failures.

Lock-Up Periods

Be cautious of platforms that lock your collateral for a fixed period with no option to repay early. In volatile markets, flexibility is essential.

Putting It All Together: A Decision Checklist

Before committing to any crypto loan offer, run through this checklist:

• What is the total cost (interest + gas fees) for my expected loan duration?
• What is my target LTV, and how far is it from the liquidation threshold?
• How much would Bitcoin need to drop to trigger liquidation at my chosen LTV?
• Has the protocol been audited? By whom? When?
• What is the protocol's track record? Any exploits or issues?
• Is the rate variable or fixed? What has the historical rate looked like?
• What network is the offer on, and what are the gas costs?
• Can I repay at any time without penalty?
• Is the process self-custodial, or do I need to trust a company with my Bitcoin?

Key Takeaways

• The interest rate is important but not the only factor — total cost including gas fees matters more.
• Loan-to-value ratio and collateral factor determine how much you can borrow. Borrow conservatively.
• The gap between max LTV and liquidation threshold is your safety buffer. Wider is better.
• Compare across protocols, networks, and collateral types to find the best offer for your situation.
• Borrow by Sats Terminal aggregates offers from Aave v3, Morpho Blue, and others, making comparison straightforward.
• Watch for red flags: unusually low rates, no audits, opaque terms, and custodial requirements.

Understanding how to read a crypto loan offer is a fundamental skill for anyone participating in DeFi lending. The more fluent you become in these terms, the better equipped you are to find the best deal and manage your risk effectively.