Crypto-Backed Loan Calculator
Estimate the total repayment cost and liquidation risk for a cryptocurrency-backed loan, including interest, volatility buffer, and liquidation penalties. Use it before borrowing against crypto to understand worst-case outcomes.
About this calculator
Crypto-backed loans let you borrow fiat or stablecoins by locking crypto as collateral, but falling prices can trigger liquidation. The total cost is modelled in three parts: (1) Compound interest on the principal: loanAmount × (1 + interestRate/100)^(loanTerm/12). (2) A volatility buffer charge: collateralValue × volatilityRate/100 × 0.2, representing a 20% risk premium on expected collateral price swings. (3) A conditional liquidation penalty: if (collateralValue − loanAmount) / collateralValue < liquidationRatio/100, then an additional 15% of collateral value is charged, reflecting forced-sale costs. Total Cost = interest portion + volatility buffer + (liquidation penalty if triggered). The loan-to-value ratio (LTV = loanAmount/collateralValue) is the key metric to watch — most platforms liquidate when LTV breaches the liquidation ratio.
How to use
You lock $20,000 of ETH as collateral and borrow $10,000 at 12% annual interest for 6 months. Liquidation ratio is 80%, and expected volatility is 30%. Step 1 – Interest: $10,000 × (1.12)^(6/12) = $10,000 × 1.0583 = $10,583. Step 2 – Volatility buffer: $20,000 × 0.30 × 0.2 = $1,200. Step 3 – LTV check: ($20,000 − $10,000)/$20,000 = 50%, which is below the 80% liquidation ratio threshold, so no liquidation penalty applies. Step 4 – Total: $10,583 + $1,200 + $0 = $11,783. You owe $11,783 at maturity, and your safety cushion is 30 percentage points above liquidation.
Frequently asked questions
What is the liquidation ratio in a crypto-backed loan and how does it work?
The liquidation ratio is the maximum loan-to-value (LTV) percentage a lender allows before they forcibly sell your collateral to recover the loan. For example, an 80% liquidation ratio means that if your loan balance reaches 80% of your collateral's current market value, the platform will sell your collateral — often at a 10–15% discount — to repay the debt. Because crypto prices can drop sharply in hours, liquidation can happen faster than you can add more collateral. Borrowers typically aim to maintain an LTV well below the liquidation threshold, often 50–60%, to give themselves a price-drop buffer before intervention is triggered.
How does cryptocurrency price volatility increase the risk of a crypto-backed loan?
Crypto collateral can lose 20–50% of its value within days during a market downturn, rapidly pushing your LTV toward the liquidation ratio. Unlike a mortgage backed by real estate, there is no grace period — most DeFi and CeFi platforms trigger liquidation automatically and instantly when the threshold is breached. Higher volatility assets require larger collateral buffers to maintain a safe LTV margin. The volatility buffer term in this calculator quantifies the extra risk cost embedded in a loan against a volatile asset, reminding borrowers that the effective cost of borrowing is higher than the stated interest rate alone.
When should you use a crypto-backed loan instead of selling your cryptocurrency?
A crypto-backed loan makes sense when you need liquidity but believe your crypto holdings will appreciate, making selling a costly opportunity-miss. It is also tax-efficient in many jurisdictions because borrowing against collateral is not a taxable disposal event, whereas selling is. However, it only makes sense if you can comfortably service the interest and maintain a low enough LTV to survive a significant price drawdown — typically a 40–50% price drop from entry — without being liquidated. If your collateral is highly volatile or you cannot add more collateral on short notice, the liquidation risk may outweigh the tax or upside benefits.