According to Fabian Dori, the top investment strategist at Sygnum, a financial institution specializing in digital assets, banks that provide loans secured by cryptocurrency tend to favor direct ownership of crypto assets, as opposed to Exchange Traded Funds (ETFs), as collateral. Dori suggests this preference for on-chain assets can be advantageous for those seeking to borrow.
Dori explained that directly-held digital assets offer greater liquidity, empowering lenders to quickly initiate margin calls on loans secured by crypto whenever needed. This heightened liquidity also allows lenders to offer more generous loan-to-value (LTV) ratios to borrowers, as the lender has the capacity to liquidate the security almost instantaneously. Speaking to Cointelegraph, Dori stated:
“Holding the underlying digital tokens directly is more advantageous because it allows for 24/7 operation. If you need to enforce a margin call on an ETF late on a Friday night when the market is closed, it presents a significant challenge. Therefore, directly holding the token is the preferred approach from an operational standpoint.”
In the realm of crypto finance, loan-to-value (LTV) represents the loan amount relative to the value of the asset securing it. Acceptable collateral often includes well-known cryptocurrencies such as Bitcoin (BTC), Ethereum (ETH), or various other digital tokens accepted by the lender.
A higher LTV ratio translates to a borrower being able to access a larger loan amount relative to their crypto collateral, whereas a lower LTV ratio results in a smaller loan for the same amount of collateral.
Dori emphasizes that lending using cryptocurrency as collateral is still in its early stages. Nevertheless, he expresses optimism that this sector will continue to expand as crypto gains increased mainstream acceptance.
Financial institutions are increasingly embracing loans secured by cryptocurrencies, especially as crypto lending platforms become publicly listed on U.S. stock exchanges and traditional financial (TradFi) organizations become more open to the idea of using crypto assets as security for loans.
Related: South Korea Limits Crypto Lending Rates to 20% and Prohibits Leveraged Loans
Traditional Finance Warms to Crypto Lending, Crypto Lending Debuts on Wall Street
Figure Technology, a business specializing in crypto-backed loans, commenced trading on the Nasdaq exchange, a major US stock market focused on technology companies, on Thursday.
The company’s stock value saw a substantial increase of over 24% during trading hours on its first day. Its current market capitalization is reportedly more than $6.8 billion, according to Yahoo Finance.
Global financial services giant JP Morgan is reportedly evaluating the possibility of offering crypto-backed loans to its clientele, a plan that could materialize sometime in 2026, should the financial institution proceed with its intentions.
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