The mechanism
You deposit crypto as collateral and borrow against it, usually in stablecoins. You keep exposure to the collateral asset while getting spendable funds. If the collateral falls below a threshold, it is sold automatically to repay the loan.
| Term | Meaning |
|---|---|
| Collateral | The crypto you lock up — typically BTC, ETH or a stablecoin |
| LTV (loan-to-value) | Borrowed amount ÷ collateral value. Borrow $5,000 against $10,000 and your LTV is 50%. |
| Liquidation threshold | The LTV at which your collateral is sold — commonly 75–85% |
| Margin call | A warning to add collateral or repay. On-chain protocols often give none. |
| Liquidation penalty | An extra charge when you are liquidated, typically 5–10% |
A worked naira example
You hold ₦10,000,000 of Bitcoin. You need ₦4,000,000 in naira and do not want to sell. You borrow ₦4,000,000 of USDT against the BTC at 40% LTV, with a liquidation threshold of 80%.
| BTC falls by | Collateral value | Your LTV | Status |
|---|---|---|---|
| 0% | ₦10,000,000 | 40% | Comfortable |
| 20% | ₦8,000,000 | 50% | Fine |
| 35% | ₦6,500,000 | 62% | Watch it |
| 45% | ₦5,500,000 | 73% | Add collateral now |
| 50% | ₦5,000,000 | 80% | Liquidated |
What liquidation means in practice. Your Bitcoin is sold at the bottom of the fall, at the worst price of the cycle, plus a 5–10% penalty. You keep the ₦4,000,000 you borrowed and you no longer own the Bitcoin. If it recovers afterwards — and Bitcoin has recovered from every fall of that size so far — you are not there for it. A 50% drawdown is not unusual for Bitcoin; it has happened repeatedly.
The real cost
| Cost | Typical |
|---|---|
| Interest, centralised platform | 6–14% annual |
| Interest, on-chain protocol | Variable, sometimes far higher when demand spikes |
| Origination fee | 0–2% |
| Liquidation penalty, if it happens | 5–10% of the position |
| Network fees, on-chain | Chain-dependent |
| Converting the borrowed USDT to naira | 1–3% P2P spread |
Set that against Nigerian alternatives. A fintech lending app charges far more than 14% and often structures it as a monthly rate that annualises brutally. A bank personal loan is cheaper than a crypto loan but slower and needs qualification. A crypto loan sits in the middle on cost — and is the only one of the three that can take your Bitcoin.
When it makes sense — and when it does not
| Situation | Verdict |
|---|---|
| Short-term naira need, large collateral buffer, income to repay | Defensible. Keep LTV under 25%. |
| Avoiding a taxable disposal on an asset you intend to keep | A real reason — see crypto tax |
| Business needs working capital and you hold crypto | Possible, with a large buffer |
| Borrowing to buy more crypto | No. This is leverage. A moderate fall wipes you out. |
| You need the money because you have none | No. If you cannot add collateral in a fall, you will be liquidated. |
| Borrowing to pay for something you cannot otherwise afford | No. The collateral risk does not disappear because the need is real. |
The rule that keeps borrowers alive. Never borrow more than you can repay from income, independent of the collateral. If your only route to repayment is selling the collateral, you are one drawdown away from having it sold for you at the worst possible price.
The halal problem
Crypto lending is interest-bearing borrowing. That is riba in its most direct form, and it is one of the least contested judgements in the whole discussion — scholars who permit spot ownership generally do not permit this. If Sharia compliance matters to you, this page is not a route you can use. See is crypto halal?
The Nigerian context
- Getting the naira out costs more. You borrow USDT, then pay a P2P spread converting to naira. Add 1–3% to the real cost.
- Platform risk is on top of market risk. Your collateral sits with a lender. Several international crypto lenders failed in 2022 and depositors lost funds. A Nigerian borrower has no local recourse against an offshore lender.
- You cannot react to a margin call while you sleep. Liquidations happen at any hour and on-chain protocols do not warn you.
- Nigerian lending apps are a different thing entirely. Naira loans from a fintech app are unsecured and expensive, but they cannot liquidate your Bitcoin. Do not confuse the two.
Safer alternatives
Sell a portion
Selling 40% of a holding is a smaller loss of exposure than being liquidated out of 100% of it. It is also simpler and cheaper.
Keep a naira emergency buffer so you never need this
The reason people take these loans is almost always the absence of a buffer.
A conventional loan if you qualify
Cheaper, and it cannot take your collateral.
Borrow far less than the platform offers
If you do proceed, an LTV of 20–25% survives a 60% drawdown. 50% LTV does not survive 40%.
Frequently asked questions
How do crypto loans work?
You deposit crypto as collateral and borrow against it, usually in stablecoins, keeping exposure to the collateral. If the collateral's value falls so that your loan-to-value reaches the liquidation threshold — commonly 75–85% — the collateral is sold automatically to repay the loan, plus a penalty.
What is liquidation and how do I avoid it?
Liquidation is the automatic sale of your collateral when your loan-to-value hits the threshold — at the bottom of the fall, at the worst price, plus a 5–10% penalty. Avoid it by borrowing far less than offered: at 20–25% LTV you survive a 60% drawdown, while at 50% LTV a 40% fall wipes you out.
What does a crypto loan cost in Nigeria?
Typically 6–14% annual interest, plus any origination fee, plus 1–3% to convert the borrowed USDT into naira through P2P. Cheaper than most Nigerian fintech lending apps, more expensive than a bank personal loan — and the only one of the three that can take your Bitcoin.
Should I borrow against my crypto to buy more crypto?
No. That is leverage, and a moderate fall liquidates you. Every leveraged retail position is one drawdown from zero, and Bitcoin has fallen 50% or more repeatedly.
Are crypto loans halal?
No. Interest-bearing borrowing is riba in its most direct form, and this is one of the least contested judgements in the discussion — scholars who permit spot ownership generally do not permit this.
Is it safer to sell some crypto instead of borrowing?
Usually yes. Selling 40% of a holding loses less exposure than being liquidated out of all of it, and it is simpler, cheaper and carries no platform risk. The trade-off is that selling is a taxable disposal while borrowing is not.
Related guides
Last reviewed: 2026-09-09. We update this page whenever Nigerian rules, fees or platform availability change. Nothing here is financial, tax or legal advice — see our editorial policy.
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