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One of the more intriguing developments in cryptocurrencies is the emergence of more financial tools for users holding digital assets. In particular, using your cryptocurrency holdings as collateral for accessing loans, earning interest, increased liquidity, and minting stablecoins.

Many of these projects are still in their early stages but offer some useful services at the convergence of conventional finance and an emerging asset class. Evaluating how they work reveals some noticeable differences in their structure and potential long-term implications in the crypto markets.

We will review BlockFi, Maker, and Celsius Network, along with their specific advantages, disadvantages, and use cases.


BlockFi is a company that issues loans with applicant crypto holdings functioning as the underlying collateral. Users apply for a loan, their application is reviewed by the team using publicly available credit tools (no hard or soft credit pulls), and the application is either accepted or denied. If approved, the team issues the loan details including duration, interest rates, and the Loan to Value (LTV) ratio.

The LTV ratio is how much USD is distributed to the loan applicant based on the underlying collateral sent to BlockFi. BlockFi releases loans in USD up to a 50 percent LTV. For instance, if you are seeking a $25,000 loan, then BlockFi will require that you at least send $50,000 worth of the underlying collateral (crypto) to them so they can reduce their risk exposure. You can learn more about their LTV ratio here.  

BlockFi accepts Bitcoin, Ether, and Litecoin as the underlying collateral for a loan. Secure wallet addresses are generated for each customer upon loan approval and prior to sending the collateral. The collateral digital assets are then stored with Gemini — the New York-based exchange — under the regulatory oversight of the New York State Financial Services Department. Users can receive their collateral back once the loan is paid off, and accrue any profits from increased prices of the underlying asset.

Conversely, if the value of the collateral decreases beyond a certain threshold, a margin call is initiated. BlockFi’s first margin call occurs at a 70 percent LTV and requires the user to deposit more collateral or pay down their loan balance to prop the LTV back into a safe range.

BlockFi’s model is very straightforward, and with a team reviewing applications and determining loan details, is analogous to any other collateralized loan through traditional financial assets that would be issued by a bank or other financial entity. The advantage for borrowers is that they can access liquidity in USD without needing to sell their crypto assets.

Similarly, users can leverage the USD issued in exchange for the collateral for various other use cases, including home loans, diversifying investments, or paying off debt. Projects using BlockFi can even generate liquidity in anticipation of future liquidity investments, which can be highly useful for project overhead in the short-term. Finally, borrowing against crypto assets does not trigger a capital gains tax.

Disadvantages from BlockFi stem from its traditional model. The platform is not ideal for users with poor credit, has higher fees, and more counterparty risk than decentralized models. Additionally, the collateral is stored with a custodian, a third-party in an industry that strives to reduce the prevalence of trusted-third parties.


Maker is essentially a decentralized, censorship-resistant version of BlockFi that exists as a conglomerate of smart contracts, governance procedures, and its stablecoin — Dai — on the Ethereum blockchain. Analyzing Maker requires evaluating two primary components of the platform, collateralized debt positions (CDPs) and Maker (MKR) holders.

CDPs currently account for roughly 1.5 percent of ETH in circulation and are smart contracts that lock in Ether as the underlying collateral. The Ether — similar to collateral in BlockFi — is over-collateralized to reduce risk, and the rate is based on the collateralization ratio. Currently, the ratio is 1.5 ETH to 1 Dai. Dai is Maker’s stablecoin and is minted when a user sends ETH to the CDP. So, if a user sends 1 ETH (at $100 per ETH) to the CDP, they will receive 66.6 Dai in return.

The CDP will begin to auction off the locked-up ETH if the price falls below a certain threshold, and will attempt to pay back the original 66.6 Dai that was extracted from the CDP automatically through the auction. Dai that is returned to the CDP is destroyed, leading to the contraction and inflation of the supply that keeps the price stability of Dai. Users can leverage CDPs for taking loans against their ETH and subsequently exchanging that for USD, or even increase their exposure to ETH by purchasing more ETH on margin.

The other primary component of the Maker ecosystem are the MKR token holders. MKR holders oversee the governance of the system by voting on critical parameters of the platform, including determining the stability fee. MKR holders are also the last line of defense in case of a catastrophic collapse where the underlying ETH cannot cover the Dai in circulation. In such an event, MKR holders produce and sell MKR tokens on the open market, driving the price down. As such, they are incentivized to avoid this scenario by properly managing the risk-based decisions that govern the system.

The advantages of Maker are that it is a censorship-resistant, stable store of value, has lower fees, is openly accessible to anyone willing to send ETH to the CDP, and reduces counterparty risk. Its disadvantages are that arbitraging opportunities are risky and the platform cannot scale effectively due to the former. Of note, a crash in the price of the underlying collateral — ETH — can have adverse consequences, but Ether has dropped by 90 percent since its ATH and Maker is still functioning, and Dai remains stable.

Celsius Network

Celsius Network is a P2P, decentralized wallet and platform for collateralized borrowing and lending. Celsius deploys a crowdsourced lending pool where lenders and borrowers deposit their digital assets into the crowdsourced pool. Lenders receive interest on their deposits generated by the interest paid by borrowers who receive funding from the pool.

Similar to BlockFi, Celsius enables loans with an LTV up to 50 percent and has similar thresholds for margin calls on the underlying collateral. Celsius deposits the collateral with BitGo — a popular digital asset custodian — as well as in cold wallet storage of several major exchanges. Additionally, Celsius Network holds roughly 120 – 150 percent of the dollar value backing asset storage stored in an FDIC-insured bank account. Importantly, lenders can have their crypto deposits returned at any point without any penalties or fees.

The more collateral that a person offers for a loan, the lower interest rates they receive. As such, Celsius is purely based off of the LTV ratio than reviewing of applicants’ credit credentials like with BlockFi. This confers greater accessibility than BlockFi, similar to Maker.

The primary advantage that separates Celsius Network from other collateralized financial tools in the cryptocurrency sector is the interest made through the P2P lending pool by lenders. Interest is earned directly in crypto, and Celsius claims lenders can receive up to 7 percent interest on their deposits. Second, Celsius Network also allows for applications for fiat loans, and both lenders and borrowers can make deposits/withdrawals to the crowdsourced pool in several cryptocurrencies, including ETH, BTC, LTC, XRP, XLM, OMG, ADA, and NEO.

Disadvantages of Celsius Network include storage with trusted custodians, including major exchanges, as well as the need for high collateralization to minimize interest rates.

Conventional financial tools that leverage digital assets are continually emerging and evolving. Understanding how they work can help you to earn interest off of your crypto holdings, access immediate liquidity and loan opportunities, or have access to a censorship-resistant stablecoin like Maker Dai.

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