CeFi vs DeFi crypto loans: what changes for borrowers
Crypto loans let you borrow by pledging cryptocurrency as collateral. CeFi loans come from companies; DeFi loans run on smart contracts that lock it.
Vahe HakobyanEditor-in-chief
Updated Oct 6, 20263 min readFact-checked
On this page
- CeFi rates are lender-set; DeFi rates follow supply and demand.
- CeFi holds collateral; DeFi locks it in code.
- CeFi checks identity; DeFi usually needs a wallet.
A cryptocurrency loan lets you pledge crypto to borrow other assets, often stablecoins. The models differ in who approves the loan, who holds your collateral, and how the rate is set.
What are CeFi and DeFi crypto loans?
A CeFi crypto loan comes from a centralized company that approves it and sets the terms. A DeFi crypto loan runs on a smart contract that holds the rules and releases the collateral when you repay.
How do collateral and custody work?
Both loans are secured: you pledge crypto worth more than the loan. If its value falls below the level in the terms, the lender or the contract sells part of it to repay the debt. CeFi holds it in custody; DeFi locks it in the contract.
Who can borrow and where?
In the US, a CeFi lender must follow federal anti-money laundering rules and may need state lending licenses, so it may not serve every state. It usually asks for identity documents. A DeFi protocol usually asks only for a wallet connection, though its website may block US users.
How do rates and risks compare?
A CeFi lender sets its own rates and terms. DeFi rates move with supply and demand as borrowers and lenders enter the pool.
Frequently asked questions
The IRS treats crypto as property. Selling collateral can create a capital gain or loss, and loan forgiveness can count as income.
The lender or the contract sells your collateral. A CeFi loan can leave a balance if the sale falls short.
Often yes, because the contracts do not check nationality. Some protocol websites block US users.
They usually are not reported to the credit bureaus. A CeFi lender may still check your credit.
