Lending your crypto: how crypto loans work (CeFi, DeFi, institutional) and what MiCA does not cover

Daniel Platteau

In short: lending your crypto means handing it to a platform or protocol that lends it on to others, in exchange for interest. The market is worth about $56 billion (Galaxy Research, via Crypto Briefing, 2026), dominated by loans to professionals, secured by other crypto. For an individual, the advertised yield comes at a price: most of the time, you no longer own your crypto, you are a creditor. And the EU's MiCA regulation does not regulate crypto lending. In 2022, customers of Celsius, BlockFi and Gemini Earn learned this the hard way.

Educational article, up to date as of 8 October 2026. It is not investment advice. Crypto-assets carry significant risks, including total loss.

Lending, borrowing: what are we talking about?

A "crypto loan" can mean two opposite things.

• Lending (often marketed as "Earn" or "yield"): you deposit bitcoin or stablecoins and the platform pays you interest. It lends them on to borrowers who pay more.
• Borrowing: you deposit crypto as collateral and receive euros or stablecoins in return, without selling your crypto. If the collateral's price falls too far, it is sold automatically: this is liquidation.

In both cases there is an intermediary. It can be centralised (CeFi: a company, with staff, accounts and a balance sheet) or decentralised (DeFi: a program on the blockchain, a smart contract, with no company holding your funds).

"Institutional loans": who really borrows?

Most borrowers are not individuals but professionals: market makers, hedge funds, trading firms, companies holding bitcoin in their treasury. They borrow to trade with leverage, provide liquidity to exchanges or exploit price differences between markets. On the other side, institutional lenders offer secured credit, usually backed by bitcoin.

Galaxy Research tracks this market every quarter. In the second quarter of 2026, crypto-collateralised loans totalled $56.16 billion, down 17% quarter on quarter (Crypto Briefing, 2026):

Two figures stand out. The market has fallen by almost 29% from its peak, for the third quarter in a row, a decline Galaxy describes as orderly, with no panic comparable to 2022. And Tether, the issuer of USDT, alone holds 58.54% of centralised lending (Crypto Briefing, 2026): the market remains highly concentrated.

How a centralised (CeFi) loan works

You deposit your crypto on the platform and accept its lending terms. Legally, this is often where everything changes: your crypto becomes the platform's property, and it owes you an equivalent amount plus interest in return. It can lend it on, pledge it as collateral in turn (this is called rehypothecation), or invest it elsewhere.

The yield therefore comes from the risk the platform takes with your money. If a large borrower goes bankrupt, or too many customers want to withdraw at the same time, the platform can freeze withdrawals. If it goes bankrupt, you become one creditor among many, and you wait for the proceedings to end.

How a decentralised (DeFi) loan works

On a DeFi protocol such as Aave or Compound, no company holds your funds: the rules are written in the code. Lenders deposit crypto into a shared pool; borrowers must deposit collateral worth more than what they borrow (overcollateralisation). If the collateral's value drops below a threshold, it is sold automatically to repay the loan.

This model removes the risk of a platform misusing funds, but creates others:

• code flaws: according to the European Banking Authority (EBA) and ESMA, lending protocols are the most frequently attacked type of DeFi protocol, with price manipulation the most common cause (EBA & ESMA, 2025);
• oracles: the protocol relies on an external source for prices; if it is manipulated or fails, unjustified liquidations can follow;
• cascading liquidations during a sudden price crash;
• no recourse: nobody to complain to if something goes wrong.

At the end of September 2024, the value locked in DeFi (TVL, total value locked) was about €78 billion; lending protocols accounted for 22% of it (EBA & ESMA, 2025).

2022: the year the "interest accounts" froze

The common thread: customers thought they held a "crypto savings account". In reality, they had lent their assets to a company that lent them on to very risky players. When large borrowers or partners fell, the Three Arrows Capital fund in June 2022 or FTX in November depending on the case, the chain broke.

What MiCA covers, and what it doesn't

Since the end of 2024, the EU's MiCA regulation has governed stablecoin issuers and crypto-asset service providers (CASPs). But it explicitly excludes lending: its recital 94 states that the regulation does not address the lending and borrowing of crypto-assets, including stablecoins. MiCA does not even define these activities (EBA & ESMA, 2025).

In practice:

• What MiCA protects: crypto you leave in custody with an authorised provider. The provider must protect your ownership rights, especially in the event of insolvency, and may not use your crypto for its own account (Regulation (EU) 2023/1114, art. 70). It is not a repayment guarantee, but it is real protection.
• What MiCA does not protect: crypto you lend is no longer covered by these custody rules. The platform may be MiCA-authorised for other services, but its lending programme, often run by another company in the group, is not subject to the same rules.
• No deposit guarantee: unlike a Belgian bank account, neither crypto held in custody nor crypto lent out is covered by the €100,000 guarantee.

In their January 2025 report, the EBA and ESMA point to the risks of these services: excessive leverage, insufficient information on fees, rates and collateral changes, and risks of rehypothecation and collateral chains. They also note that some providers offer these services alongside regulated services (EBA & ESMA, 2025). The European Commission is to assess whether they should be regulated.

And tax in Belgium?

Interest received from lending your crypto does not fall under the new 10% capital gains tax. It is taxed when you receive it, in principle as investment income, and the exact regime is still debated. We cover this in Crypto tax in Belgium in 2026. Note also that borrowing to invest in crypto is one of the factors that can tip you into the 33% speculation regime.

Before lending: seven questions to ask yourself

1. Who is the counterparty? The exact name of the company you sign with, its country, its status with the FSMA and ESMA.
2. Do you remain the owner? Read the terms: if you "transfer ownership", you are a creditor.
3. Where does the yield come from? Loans to whom, with what collateral, with or without rehypothecation?
4. Can you withdraw whenever you want? Delays, limits, the platform's right to suspend withdrawals.
5. What happens in a bankruptcy? Are you a priority creditor or an ordinary one?
6. For DeFi: has the protocol been audited, how long has it been running, has it ever been hacked?
7. Can you afford to lose this money? If not, don't lend it.

A simple rule: only lend what you would accept seeing frozen for a year, or lost.

Test yourself

Key terms

• CeFi: centralised crypto finance, run by a company that holds the funds.
• DeFi: decentralised finance, run by programs on the blockchain (smart contracts).
• Overcollateralisation: collateral worth more than the amount borrowed.
• Liquidation: automatic sale of collateral when its value becomes insufficient.
• Rehypothecation: an intermediary reusing assets entrusted to it as collateral.
• Oracle: a service that feeds a smart contract with outside data, such as prices.

Disclaimer

This article is educational and is neither investment advice nor tax advice. It does not recommend any lending platform or protocol. Lending your crypto exposes you to counterparty risk, technical flaws, withdrawal freezes and total loss, on top of price risk. Always check a provider's status with the FSMA and ESMA.

Sources

Crypto Briefing. (2026, August 19). Galaxy reports $11B decline in crypto-collateralized lending in Q2 2026. https://cryptobriefing.com/galaxy-crypto-lending-q2-2026-decline/

Decrypt. (2024, February 29). Gemini to return $1.1 billion to Earn customers, pay $37 million fine in New York settlement. https://decrypt.co/219610/gemini-return-1-billion-to-earn-customers-pay-37-million-fine-new-york

Decrypt. (2025, May 8). Former Celsius Network CEO Alex Mashinsky sentenced to 12 years in prison. https://decrypt.co/318623/former-celsius-network-ceo-alex-mashinsky-sentenced-12-years-prison

EBA & ESMA. (2025, January 16). Joint report on recent developments in crypto-assets (Article 142 of MiCAR). https://www.eba.europa.eu/sites/default/files/2025-01/5fe168a2-e5a6-41a1-a1b4-87a35ecebb5c/Joint%20Report%20on%20recent%20developments%20in%20crypto-assets%20%28Art%20142%20MiCAR%29.pdf

ESMA. (2025, January 16). The EBA and ESMA analyse recent developments in crypto-assets. https://www.esma.europa.eu/press-news/esma-news/eba-and-esma-analyse-recent-developments-crypto-assets

Fortune. (2022, November 28). Crypto lender BlockFi files for bankruptcy after FTX implosion. https://fortune.com/2022/11/28/crypto-lender-blockfi-files-for-bankruptcy-after-ftx-implosion

Regulation (EU) 2023/1114 of the European Parliament and of the Council of 31 May 2023 on markets in crypto-assets (MiCA). (2023). Official Journal of the European Union, L 150, 40-205. https://eur-lex.europa.eu/eli/reg/2023/1114/oj