Key facts
- Crypto-backed loans allow borrowers to receive cash by pledging digital assets as collateral.
- This process generally avoids a taxable capital gains event associated with selling crypto.
- Key comparison points for lenders include loan-to-value, rate type, licensing, and liquidation terms.
- Figure Lending LLC is a licensed lender offering crypto-backed loans with optional liquidation protection.
- The loans are not suitable for individuals who would be uncomfortable with margin call risks.
Crypto-backed loans provide a financial solution for digital asset holders seeking liquidity without selling their holdings, thereby avoiding immediate capital gains taxes. This method allows individuals to pledge cryptocurrencies such as Bitcoin, Ethereum, or Solana as collateral to receive a cash loan, typically up to 75% of the collateral's value. By keeping ownership of the crypto, borrowers retain potential future upside and avoid triggering a taxable event.
When evaluating crypto-backed loan providers, several factors are crucial. These include the maximum loan-to-value (LTV) ratio offered, whether the interest rate is fixed or variable, the lender's regulatory standing and licensing, and the specific terms of liquidation. Figure Lending LLC, a licensed lender (NMLS #1717824), emphasizes the importance of these factors, contrasting its offerings with unregulated offshore platforms. Figure provides loans with a fixed rate for the loan's duration and offers optional liquidation protection in select states, which can defer price-based liquidations for the loan term.
While the interest rate is a consideration, the lender's licensing and liquidation policies are paramount in mitigating the risk of forced sale during market volatility. The product is best suited for long-term crypto holders who are comfortable with the possibility of margin calls. For instance, a $10,000 loan at 50% LTV with an 8.91% interest rate and a 1% origination fee would result in an APR of 9.999%, with 12 monthly payments of $74.25. Liquidation protection does not cover loan delinquency, missed payments, or defaults.