BTC-to-BTC vs. Fiat Bitcoin Loans: The Structural Difference
The fundamental difference: asset alignment determines risk.
All Bitcoin-backed loans use Bitcoin as collateral, but the loan currency creates fundamentally different risk profiles. Understanding this structural difference is critical for making informed decisions.
The Core Difference
- Fiat Bitcoin loans: Bitcoin collateral + USD/USDC loan = asset mismatch = margin calls and liquidation risk
- BTC-to-BTC loans: Bitcoin collateral + Bitcoin loan = asset alignment = no margin calls, no liquidation risk
- Result: BTC-to-BTC loans eliminate the primary risks that plague traditional Bitcoin lending
Why Fiat Bitcoin Loans Create Risk
Fiat-denominated Bitcoin loans create structural risk through asset mismatch:
Asset Mismatch
You stake Bitcoin (volatile asset) but receive USD/USDC (stable currency). The loan amount is fixed in fiat, but your collateral value fluctuates with Bitcoin's price.
Price Volatility Creates Risk
When Bitcoin price drops, your collateral value decreases, but your loan amount stays the same. This worsens your loan-to-value (LTV) ratio.
Margin Calls Triggered
As LTV approaches liquidation threshold (typically 80-85%), lenders issue margin calls, demanding additional collateral or partial repayment.
Liquidation Occurs
If you can't meet margin calls, lenders forcibly sell your Bitcoin to cover the loan, often at the worst possible time during market downturns.
The Real Cost: Liquidation doesn't just mean losing collateral. It means losing it at the worst price, with additional fees, during market stress. This compounds losses significantly.
How BTC-to-BTC Eliminates This Risk
Bitcoin-to-Bitcoin lending eliminates margin call and liquidation risk through asset alignment:
Fiat Bitcoin Loan
BTC-to-BTC Loan
Why BTC-to-BTC Can't Be Liquidated
With BTC-to-BTC loans, liquidation is mathematically impossible:
- Same asset on both sides: Both collateral and loan are Bitcoin
- Price changes affect both equally: If Bitcoin doubles or halves, both sides move together
- LTV ratio stays constant: No asset mismatch means no change in loan-to-value ratio
- No liquidation mechanism exists: There's no mathematical basis for forced sales
Fiat Loans vs. BTC-to-BTC: Feature Comparison
| Feature | Fiat Bitcoin Loans | BTC-to-BTC Loans (LMC) |
|---|---|---|
| Loan Currency | USD, USDC, or other fiat | Bitcoin (BTC) |
| Asset Alignment | Mismatch (BTC collateral, fiat loan) | Aligned (BTC collateral, BTC loan) |
| Maximum LTV | 50-70% (typical) | 95% |
| Margin Calls | Yes - triggered by price drops | None - impossible |
| Liquidation Risk | Yes - forced sales at 80-85% LTV | None - no mechanism exists |
| Fee Structure | 10-20% APR (ongoing interest) | 5% upfront (one-time) |
| Price Volatility Impact | High - affects LTV and triggers margin calls | None - LTV remains constant |
| Counterparty Risk | Ongoing - lender holds collateral | Minimal - borrowed BTC delivered upfront |
| Best For | Short-term USD liquidity needs | Long-term holders avoiding liquidation |
Risk Score Comparison
Zone21.com provides independent risk assessments for Bitcoin-backed loan providers. Fiat-denominated loans consistently score higher risk than BTC-to-BTC:
Loan My Coins (BTC-to-BTC)
Lowest risk due to asset alignment eliminating liquidation and margin call mechanisms.
Unchained (Fiat USD)
Multi-sig security helps, but fiat loan structure creates margin call risk.
Ledn (Fiat USDC/USD)
CeFi custody and fiat loan structure create higher liquidation and counterparty risk.
Strike (Fiat USD)
High liquidation risk due to fiat loan structure and custody model.
Risk assessments from Zone21.com. See Zone21.com for detailed methodology. Risk assessments are subjective and for reference only. Not investment advice.
Which Structure Fits Your Needs
Choose Fiat Bitcoin Loans If:
- You need immediate USD/USDC liquidity
- You're comfortable actively managing margin call risk
- You want short-term leverage (under 12 months)
- You actively monitor Bitcoin prices
- You can add collateral during market downturns
- You prefer ongoing APR over upfront fees
Choose BTC-to-BTC Loans If:
- You're a long-term Bitcoin holder
- You want to eliminate liquidation risk entirely
- You prefer Bitcoin-only solutions (no fiat exposure)
- You want maximum capital efficiency (95% LTV)
- You don't want to monitor prices or manage margin calls
- You prefer predictable, fixed fees (5% upfront)
Ready to Compare Your Options?
Use our calculator to model different scenarios and see how BTC-to-BTC lending compares to fiat Bitcoin loans in your specific situation.
Important: Loan My Coins acts solely as an introducer. All loans and agreements are entered into directly with an independent loan provider. This comparison is for informational purposes only. Always do your own research and verify current terms directly with providers.