Crypto-Backed Loans 101: A Complete Glossary of Key Terms

Crypto lending is rapidly transforming how investors access liquidity without selling their assets. However, the terminology can be overwhelming, especially for those new to the space. Whether you're borrowing against your crypto or exploring yield-generating opportunities, understanding key terms is essential.

This glossary breaks down the must-know terms in crypto lending to help you make informed decisions.

A

APR (Annual Percentage Rate)

The yearly interest rate charged on a loan, including fees, expressed as a percentage is called APR. Unlike APY, it does not account for compounding interest. Find out how your APR impacts the total cost of your loan and how it compares to other borrowing options. Use this APR calculator to estimate your payments and ensure you’re getting the best deal.

APY (Annual Percentage Yield)

The effective annual return on an investment or interest-bearing deposit, factoring in compound interest.

B

Blockchain

A decentralized ledger that records all transactions across a network. Crypto lending platforms use blockchain technology to verify transactions securely.

C

Collateral

The cryptocurrency a borrower must deposit to secure a loan. The collateral provides security for the loan in case the borrower defaults" or anything to avoid saying we liquidate the collateral.  

Custodial Lending

A lending model where a centralized entity holds and manages the assets on behalf of borrowers. 

CeFi (Centralized Finance)

A financial system where a trusted company or institution like BitGo intermediates financial services such as custody, lending, trading, and more, ensuring security and compliance.

Crypto-Backed Loan

A loan secured by cryptocurrency holdings, allowing users to borrow fiat or stablecoins without selling their crypto. For example, you can borrow against cryptocurrencies like Bitcoin, Litecoin, Ethereum, and Solana with Lantern. 

D

DeFi (Decentralized Finance)

A blockchain-based financial system that enables peer-to-peer financial services such as lending, trading and more, without intermediaries. 

Default

This occurs when the borrower fails to meet payment obligations, which may lead to a default rate being applied or liquidation of collateral.

DEX (Decentralized Exchange)

A peer-to-peer exchange where users trade crypto assets without a central authority. Some DeFi lending protocols integrate with DEXs for loan liquidation.

F

Fixed Rate

A fixed rate is an interest rate that does not change with the market conditions. Once borrowed, the interest rate is locked for the duration of the loan. This is the opposite of a variable interest rate, which changes as per market conditions. 

H

Health Factor

A metric used to indicate the risk level of a borrower’s position. If the health factor drops below a certain level, liquidation may occur.

I

Interest Rate

The cost of borrowing funds, expressed as a percentage. Crypto lending rates vary based on market conditions and platform policies.

Initial Margin

The minimum amount of collateral required to open a leveraged borrowing position.

L

LTV (Loan-to-Value) Ratio

A measure of risk in crypto loans, calculated by dividing the loan amount by the value of the collateral. A high LTV means higher risk of liquidation.

Liquidation

The process of selling collateralized assets to cover a defaulted loan. Liquidation usually occurs when collateral value falls below a critical threshold.

M

Margin Call

A notification that a borrower's collateral value is approaching the liquidation threshold, prompting them to add more collateral or pay down part of the loan.

Maturity Date

The due date for the loan. Borrowers must repay their loan by or on the maturity date in order to avoid being in default. 

Multi-Collateral Loan

A loan that allows multiple cryptocurrencies as collateral, reducing liquidation risk.

O

Overcollateralization

A lending requirement where borrowers must provide more collateral than the loan amount to mitigate lender risk.

P

Principal

Principal is the original amount of money borrowed, excluding interest or fees.

R

Recourse

Recourse is a term in loan documents that provides Lenders with the option to pursue borrowers personally in the event of default. All of Lantern’s loans are non-recourse. 

Repayment Terms

The conditions under which a borrower must repay the loan, including interest rates, duration, and penalties.

Risk Management

Strategies lenders and borrowers use to mitigate the risks associated with crypto price volatility and liquidation.

S

Stablecoin 

A stablecoin is a token that represents $1 that can be sent on blockchain networks. For example, USDC is created by Circle, which holds dollars which back each token of USDC on a blockchain network. 

Stablecoin Loan

A loan issued in stablecoins, such as USDC, reducing exposure to crypto market volatility.

U

Underwriting

The process lenders use to assess a borrower's risk before approving a loan. 

V

Variable Interest Rate

An interest rate that fluctuates based on market supply and demand for crypto loans.

Conclusion

Borrowing against your crypto can be a game-changer for investors looking to unlock liquidity while retaining their assets. But here’s an added advantage: borrowing against your crypto allows you to access cash without triggering capital gains tax or missing out on upside. Selling your crypto means you could owe taxes on the profits, while using it as collateral lets you retain ownership and benefit from potential price appreciation.

At Lantern, we make borrowing easy, secure, and flexible—helping you unlock the value of your crypto without sacrificing future gains. Whether you need cash flow for investments, expenses, or new opportunities, our transparent, low-risk lending solutions put you in control.

Ready to borrow smarter? Explore Lantern today.