If you want to borrow against your Bitcoin or other crypto, you have two broad paths. A CeFi (centralized finance) loan comes from a company that operates like a traditional lender: it holds your collateral, underwrites your loan, and gives you humans to call when something goes wrong. A DeFi (decentralized finance) loan comes from a smart contract protocol: code holds your collateral, code enforces the terms, and no one is on the other end of the phone.
Both models let you access cash or stablecoins without selling your crypto. The differences show up in custody, regulation, risk management, and what happens when markets move fast. This guide breaks down how each works so you can decide which fits your situation. If you are new to the concept entirely, start with our guide to how Bitcoin-backed loans work, then come back here.
What Is a CeFi Crypto Loan?
A CeFi crypto loan is issued by a centralized company. You create an account, complete identity verification (KYC), transfer your crypto to the lender’s custody arrangement, and receive a loan in dollars or stablecoins. The lender sets the rates, the loan-to-value (LTV) options, and the terms, and it is responsible for safeguarding your collateral until the loan is repaid.
Key characteristics of CeFi lending:
- A legal entity stands behind the loan, with a loan agreement you can read and enforce.
- Collateral is held in a custody arrangement managed by the lender, often with institutional custody partners.
- KYC and AML checks are required, which also means fraud and sanctions screening protect the platform.
- Customer support exists. If prices move quickly, you may be able to talk to a person about your options.
- Depending on the lender, tools like margin call notifications, collateral top-ups, and volatility protections may be built in.
What Is a DeFi Crypto Loan?
A DeFi loan is issued by a protocol, which is a set of smart contracts running on a public blockchain. You connect a self-custody wallet, deposit collateral into the contract, and borrow against it instantly. There is no application, no KYC in most cases, and no company deciding whether to approve you. Interest rates typically float based on supply and demand in the protocol’s liquidity pools.
Key characteristics of DeFi lending:
- Permissionless access. Anyone with a wallet and collateral can borrow in minutes.
- The smart contract holds your collateral. No company custodies it, but no company protects it either.
- Liquidations are automatic. If your LTV crosses the protocol’s threshold, bots liquidate your position immediately, usually with a liquidation penalty.
- Rates float with market conditions and can change quickly.
- You carry the operational burden: wallet security, transaction execution, gas fees, and monitoring your position around the clock.
CeFi vs DeFi: Side-by-Side Comparison
| CeFi Loan | DeFi Loan | |
|---|---|---|
| Who lends | A licensed company with a legal agreement | A smart contract protocol |
| Custody | Lender-managed custody, often with institutional partners | Smart contract holds collateral |
| KYC required | Yes | Usually no |
| Rates | Set by the lender, typically fixed for the term | Variable, driven by pool supply and demand |
| Margin calls | Notifications and a window to act, depending on the lender | None. Automatic liquidation at the threshold |
| Support | Human support teams | Community forums and documentation |
| Main risks | Counterparty and platform risk | Smart contract exploits, oracle failures, instant liquidation |
| Best for | Borrowers who want accountability, support, and risk tools | Technical users comfortable managing positions on-chain |
How Custody Works in Each Model
Custody is the heart of the CeFi vs DeFi debate. In CeFi, you are trusting a company. That trust should be verified: ask how collateral is held, whether it is rehypothecated, and what happens in a worst-case scenario. Our guide on whether Bitcoin-backed loans are safe walks through exactly how to vet a lender’s custody practices.
In DeFi, you are trusting code. The contract cannot run away with your funds the way a bad actor at a company could, but code has its own failure modes. Billions of dollars have been lost to smart contract exploits, oracle manipulation, and bridge hacks over the years. Audits reduce this risk but do not eliminate it, and there is generally no recourse when an exploit happens.
Regulation and Accountability
CeFi lenders operating in the United States are increasingly subject to state lending licenses, disclosure requirements, and examinations. That regulatory surface gives borrowers real protections: a legal agreement, a regulator to complain to, and a company with a reputation and licenses to lose.
DeFi protocols mostly sit outside that framework today. There is no entity to license, no agreement to enforce in court, and no regulator with clear jurisdiction over a smart contract. For some borrowers that permissionless quality is the entire point. For others, especially anyone borrowing meaningful amounts, the absence of accountability is a dealbreaker.
Margin Calls, Liquidations, and Risk Tools
The sharpest practical difference appears when crypto prices fall. In DeFi, liquidation is mechanical. The moment your position crosses the protocol’s threshold, liquidator bots repay part of your debt and take your collateral plus a penalty. There is no phone call, no grace period, and it can happen at 3 a.m. on a Sunday.
CeFi lenders generally give you a margin call first: a notification that your LTV has risen and a window to add collateral or pay down the loan. Some go further. SALT, for example, offers Stabilization, which is designed to convert collateral to a stable asset during sharp drawdowns to help preserve value, and SALT Shield, which is designed to protect qualifying loans from market-triggered liquidation. To understand the mechanics, read our explainer on margin calls and LTV on crypto-backed loans.
Which Should You Choose?
There is no universal answer, but the decision usually comes down to a few honest questions:
- How hands-on do you want to be? DeFi rewards borrowers who monitor positions constantly and can execute on-chain transactions under pressure. CeFi is built for borrowers who want the loan to work in the background.
- What is your risk tolerance for code? If a smart contract exploit wiping out your collateral is an unacceptable outcome, the CeFi model with vetted custody will fit better.
- Do you value recourse? A licensed lender gives you a contract, a support team, and a regulator. A protocol gives you documentation.
- How large is the loan? Many borrowers experiment with small DeFi positions but prefer an accountable counterparty for six and seven figure borrowing.
Where SALT Fits
SALT has been making crypto-backed loans since 2016, which makes it one of the longest-operating lenders in the space, CeFi or DeFi. Loans come with a clear agreement, human support, margin call notifications, and volatility tools like Stabilization and SALT Shield® that DeFi protocols simply do not offer. If that model sounds like the right fit, you can estimate your borrowing power with our Bitcoin loan calculator or start an application in minutes.
Frequently Asked Questions
Is CeFi or DeFi cheaper for crypto loans?
It depends on market conditions. DeFi rates float with liquidity pool utilization and can be very low in quiet markets, then spike during volatility. CeFi rates are set by the lender and are typically fixed for the loan term, which makes total borrowing cost predictable. Factor in gas fees, liquidation penalties, and the value of your own time when comparing.
Is DeFi lending safer than CeFi lending?
Each model carries different risks rather than more or less risk. CeFi risk is counterparty risk: you must trust the company’s custody, solvency, and practices. DeFi risk is technical: smart contract exploits, oracle failures, and instant liquidations. The safer option is the one whose risks you understand and can manage.
Do DeFi loans require KYC?
Most DeFi protocols do not require identity verification. You connect a wallet and borrow. This is a convenience, but it also means the protocol offers no fraud protection, no account recovery, and no support if something goes wrong. Regulatory treatment of permissionless lending also continues to evolve.
Can you get margin called on a DeFi loan?
No, and that is a drawback rather than a benefit. DeFi protocols skip the margin call entirely and move straight to automatic liquidation the moment your LTV crosses the threshold. CeFi lenders typically notify you first and give you time to add collateral or pay down the balance.
Are CeFi crypto lenders regulated?
Increasingly, yes. Reputable US lenders hold state lending licenses, register with regulators such as NMLS, and are subject to examinations and disclosure requirements. Always verify a lender’s licensing before borrowing. SALT loans are originated by SALT Lending LLC, NMLS 1711910.
Does SALT offer CeFi or DeFi loans?
SALT is a CeFi lender. It pairs the accountability of a licensed, long-operating company with tools built specifically for crypto volatility, including margin call notifications, Stabilization, and SALT Shield.
Disclaimer
This article is for general informational purposes only and does not constitute financial, legal, tax, or investment advice. Digital assets are highly volatile and borrowing against collateral entails risk, including the potential loss of collateral. References to third-party protocols and platforms are for educational purposes only and are not endorsements. Rates, terms, and product features are subject to change and may vary based on loan amount, qualifications, and collateral profile. SALT loans are subject to jurisdictional limitations and other restrictions; for current availability in your jurisdiction, see saltlending.com/map-list. SALT loans are originated by SALT Lending LLC (f/k/a SALT Master Fund II, LLC), NMLS 1711910.
