Crypto-Backed Loans

Definition ∞ Crypto-backed loans are financial arrangements where borrowers use digital assets as collateral for a loan. These loans allow individuals to obtain fiat currency or other digital assets without selling their cryptocurrency holdings, preserving potential upside. The collateral is typically over-collateralized to account for the volatility of digital assets, reducing lender risk. If the value of the collateral falls below a certain threshold, a margin call or liquidation may occur.
Context ∞ The market for crypto-backed loans continues to grow, offering alternative financing options in both centralized and decentralized finance platforms. Discussions frequently address the risks associated with market volatility, which can lead to forced liquidations for borrowers. Regulatory scrutiny is increasing globally, with authorities examining consumer protection, transparency, and systemic risks. The future development of these products will likely involve more sophisticated risk management tools and clearer regulatory guidelines.