A
Annual Percentage Rate (APR)
The yearly interest rate charged on a loan, including fees and expressed as a percentage. For Bitcoin loans, APRs typically range from 4% to 16%, depending on the provider and collateralization ratio.
Automated Market Maker (AMM)
In DeFi lending platforms, AMMs are algorithms that automatically determine interest rates based on supply and demand of assets in lending pools, without requiring traditional order books.
B
Bitcoin Collateral
The Bitcoin (BTC) assets pledged by a borrower to secure a loan. If the borrower defaults, the lender can liquidate this collateral to recover the loaned amount.
Bitcoin-Backed Loan
A loan where Bitcoin is used as collateral. The borrower receives fiat currency or stablecoins while depositing Bitcoin as security, which is returned when the loan is repaid.
C
Collateral
Assets pledged by a borrower to secure a loan. In Bitcoin-backed loans, BTC serves as the collateral that can be liquidated if the borrower fails to repay the loan.
Collateral-to-Principal Ratio (CTP)
The inverse of LTV, representing the ratio of collateral value to loan amount. A 200% CTP means the collateral is worth twice the loan amount (equivalent to 50% LTV).
Collateralization Ratio
The ratio between the value of collateral and the loan amount. Higher ratios provide more security for lenders and reduce liquidation risk for borrowers.
Cold Storage
A security method where Bitcoin collateral is stored offline in hardware wallets or air-gapped computers, protecting it from online hacking attempts.
Custodial Service
A service where the lending platform holds and controls the Bitcoin collateral. The borrower transfers custody of their Bitcoin to the lender for the loan duration.
D
Decentralized Finance (DeFi)
Financial services provided through blockchain technology without centralized intermediaries. Some Bitcoin loans use DeFi protocols to enable non-custodial lending.
Discrete Log Contracts (DLC)
A type of smart contract for Bitcoin that uses cryptographic techniques to create secure, non-custodial lending agreements without requiring complex scripting.
E
Early Repayment
Paying off a loan before its scheduled end date. Some Bitcoin loan providers charge penalties for early repayment, while others allow it without additional fees.
I
Interest Rate
The percentage charged by lenders for borrowing money. In Bitcoin-backed loans, interest rates vary based on loan-to-value ratio, term length, and market conditions.
K
Know Your Customer (KYC)
Identity verification procedures required by many financial services. Some Bitcoin loan providers require KYC, while others offer no-KYC options with different terms.
L
Liquidation
The process of selling collateral to cover the loan amount when the borrower fails to maintain required collateral levels, typically triggered when the LTV exceeds a predetermined threshold due to Bitcoin price decreases.
Liquidation Threshold
The LTV level at which a lender will liquidate collateral to recover the loan. Typically ranges from 70%-95% depending on the provider and loan terms.
Loan Term
The duration of a loan, from initiation to the scheduled repayment date. Bitcoin-backed loans typically offer terms ranging from 30 days to 36 months.
Loan-to-Value Ratio (LTV)
The ratio between the loan amount and the value of the collateral, expressed as a percentage. For example, a $50,000 loan backed by $100,000 in Bitcoin would have a 50% LTV ratio.
M
Margin Call
A notification to add more collateral when the LTV ratio exceeds a certain threshold due to collateral value decrease. Failing to respond to a margin call typically leads to liquidation.
Multisig (Multi-signature)
A security feature requiring multiple private keys to authorize a Bitcoin transaction. In lending, multisig wallets are often used to secure collateral with keys held by different parties.
N
Non-custodial Lending
Loan arrangements where the borrower maintains control of their Bitcoin collateral, often using smart contracts or multisig wallets, minimizing trust requirements in the lender.
O
Origination Fee
A one-time fee charged by lenders to process a new loan. For Bitcoin-backed loans, origination fees typically range from 0% to 3% of the loan amount.
P
Proof of Reserves
A cryptographic verification method that allows a lending platform to prove it has the Bitcoin reserves it claims to hold, without revealing sensitive information.
R
Rehypothecation
The practice where lenders reuse collateral posted by borrowers for their own purposes. Some Bitcoin loan providers explicitly prohibit rehypothecation for security.
S
Self-custody
The practice of maintaining personal control over Bitcoin private keys. Some loan platforms enable self-custody collateral options using smart contracts or multisig arrangements.
Smart Contract
Self-executing code that automatically enforces rules when predefined conditions are met. Used in some Bitcoin lending platforms to automate loan terms and collateral management.
Stablecoin
Cryptocurrencies designed to minimize price volatility, often by pegging their value to a fiat currency like USD. Many Bitcoin-backed loans disburse funds in stablecoins like USDC or USDT.
V
Volatility Buffer
The cushion between current collateral value and liquidation threshold, expressed as a percentage. Larger buffers provide more protection against price volatility.