What do Bitcoiners want when borrowing against their BTC?

I missed publishing last month. My co-founder was in town, we spent time experimenting with different approaches at Surge, attended a few conferences and hackathons, and squeezed in some family time too. Now I’m back and today’s post is part of my ongoing product research on Bitcoin lending/borrowing markets.

Why this topic? Because stablecoins are becoming more central to payments, remittances, and everyday crypto use. And while Surge is solving for Bitcoin programmability and scale, going deep on a specific use case, borrowing and lending, makes a lot of sense.

Crypto-collateralized lending is not new. A recent Galaxy report shows that DeFi lenders have bounced back strongly after last cycle’s CeFi collapses, and the market is close to all-time highs again.

But here’s the catch: when it comes to Bitcoin, the story looks different. Despite the rise of DeFi, BTC lending is still dominated by centralized players. After weeks of digging into this space, I kept running into the same signal: Bitcoiners want openness and transparency, but the current market is opaque and trust-based.

So, what exactly do Bitcoiners care about when borrowing stables or fiat against their BTC? Let’s break it down.

Rehypothecation = your lender re-uses your BTC collateral elsewhere.

Example: you borrow stables against 2 BTC, the lender takes those same coins and uses them to chase yield.

• Upside: can slightly reduce your interest rates (APY).

• Downside: you risk losing your Bitcoin if their bets go bad.

Bitcoiners generally don’t want this. They’d rather pay a bit more than risk losing their BTC stack.

Some platforms (like Ledn) let you opt in/out of rehypothecation, but it’s all off-chain. You don’t really know what happens, only audits or attestations give a partial picture. Which is why rehypothecation remains one of the biggest red flags for Bitcoiners.

The second question: Who holds my Bitcoin?

• In Ethereum DeFi, smart contracts manage custody on-chain.

• In Bitcoin lending, you usually give up custody to a centralized entity.

Most major lenders use custodians like BitGo, Coinbase Custody, or Anchorage, which are regulated and reputable. But the fear remains: if you don’t hold the keys, you don’t control your BTC.

That loss of custody, combined with the risk of rehypothecation, explains why trust and custody setup matter so much in BTC lending.

Auto-liquidation is standard: if your Loan-to-Value (LTV) ratio crosses a set threshold, your BTC gets sold.

• Markets can move fast, so full liquidation (instead of partial) can wipe out your position.

• Liquidation can also be triggered by unpaid interest or missed repayments.

• Many Bitcoiners feel liquidation systems are too aggressive, sometimes benefitting lenders who scoop BTC at discounted prices.

For a HODL-minded community, losing Bitcoin this way is painful. This makes liquidation design one of the highest-stress aspects of borrowing against BTC.

Yes, Bitcoiners care about the fine print too. Common differentiators include:

• LTV (Loan-to-Value): how much you can borrow. E.g., at 50% LTV, 1 BTC at $110k lets you borrow $55k.

• APY (Interest Rates): typically 8–16%, varying by platform and loan size.

• Repayment schedule: some let you defer till maturity, others require periodic payments.

• Fees: origination, service fees, etc.

• Penalties: for early repayment or liquidation events.

• Loan term: usually 3 to 24 months, with 12 months being most common.

These terms might look “secondary” compared to custody or liquidation risk, but they often decide which platform a borrower picks.

Other factors also shape decisions:

• Minimum loan size: many platforms focus on high-net-worth individuals (HNWI), which clashes with Bitcoin’s ethos of accessibility.

• Reputation & legal structure: jurisdiction matters, especially when you’re borrowing fiat for real-world use.

• Transparency: centralized players rarely disclose numbers.

• As of Q2 2025, crypto-collateralized lending is a $53.09B market (Galaxy Research).

• Bitcoin makes up a significant share, though data is fragmented since most BTC lending is centralized.

• In DeFi, much of the “BTC lending” is actually with WBTC (wrapped Bitcoin), which is still custodied by BitGo, raising the same trust questions.

These four pillars: rehypothecation, custody, liquidation, and loan terms are what Bitcoiners weigh most heavily when borrowing against their BTC.

If you’ve borrowed before:

👉 Which of these mattered most to you?

👉 Are there other factors I’ve missed?

Drop a comment, I’m collecting as many perspectives as possible.

I’ll be sharing more insights on BTC lending soon. At Surge, we’re experimenting with something pretty different (and crazy exciting) in this space, more on that in upcoming posts.

Disclaimers

• This article was written with editorial assistance from ChatGPT 5. All ideas, research, and conclusions are my own