A study released by Ledn and Protocol Theory suggests that Bitcoin-backed lending is still in its early stages, but potential demand clearly exceeds current usage levels. The report estimates that, with improvements in product transparency, custody security, and the regulatory environment, this market could expand to $1 trillion in the future.
Demand exceeds actual usage
This seven-page study attempts to measure the demand gap for crypto-collateralized lending. The report states that 88% of crypto asset holders say they would be willing to use loans or credit products to finance at least one planned consumption or investment, but only 14% have actually used such services.
Research indicates that the main barriers to adoption are not lack of product awareness or insufficient demand, but concerns about security and platform trustworthiness. Key user concerns include whether interest rates are transparent, whether liquidation mechanisms are clearly defined, and whether custodied assets are secure.
How do BTC collateral loans work?
The basic logic of this type of product is similar to traditional mortgage loans. Users deposit BTC into a wallet designated by the lender as collateral in exchange for a fiat or stablecoin loan. The loan amount typically represents only 50% to 70% of the collateral's value, providing a buffer against price fluctuations.
Borrowers are required to pay interest annually, with the common range mentioned being 5% to 15%. The pledged BTC can only be reclaimed after the principal and interest have been fully repaid.
The most critical metric is the loan-to-value ratio, or LTV. If the price of Bitcoin falls, the LTV rises, increasing the risk of the loan. When the collateralization rate reaches the platform’s preset threshold, the lender typically automatically sells some or all of the BTC to recover fiat or stablecoins and settle the loan.
The market size is still lower than that of traditional credit.
Research indicates that the mortgage market in traditional finance has reached trillions of dollars, while crypto-backed lending remains only a small fraction of it. The report notes that this market reached a seasonal high in the third quarter of 2025, but its total size still fell short of $74 billion.
Ledn and Protocol Theory believe that if trust issues are addressed, the volume of crypto-collateralized lending has the potential to approach mature markets such as stock-pledge lending, and could eventually exceed $1 trillion in the long term.
However, the report also notes that this growth will not be achieved in the short term. In addition to improving transparency and custody security, the market requires a clearer regulatory environment and lower medium- to long-term price volatility.
The study also notes that volatility itself is one of Bitcoin’s key characteristics. Even if long-term volatility may gradually decline, whether it is sufficient to significantly reduce liquidation risk remains a critical issue that must be addressed when expanding such products.