When you borrow money with Bitcoin as collateral, where does your Bitcoin actually go?

Asset flow and risk model behind Bitcoin mortgage lending

When someone borrows dollars with Bitcoin as collateral, two things happen at the same time: cash flows to the borrower, and collateral flows out of the borrower. The balance shown in the account reveals only part of the story; another part of the story concerns where Bitcoin actually went, who can use it, and the factors that determine whether it can be returned.

Galaxy Research reported that as of the end of the second quarter of 2026, the total outstanding amount of crypto mortgage loans reached US$56.16 billion, covering centralized lending institutions and decentralized agreements. This means that a large amount of assets are kept outside the owner's wallet, with terms that vary significantly depending on the lender.

Institutional Custody Model: Ledn's Paradigm

Ledn is a centralized Bitcoin mortgage lender that provides what it calls "Custody Loans." According to the company's documents, when a borrower deposits Bitcoin as collateral, Ledn may re-pledge the collateral to an institutional dollar financing partner (such as a bank, credit fund, or other corporate entity), or place it in financing vehicles sponsored by Ledn , including asset-backed securities backed by Bitcoin.

尽管抵押品发生了转移，但围绕它的规则是特定的。Ledn 表示，抵押品始终处于可验证的托管状态，在法律上与融资合作伙伴的自有资产隔离，或保存在破产远程载体中。Ledn、融资合作伙伴或任何融资工具均无权将其出借以获取利息。

将比特币作为美元贷款的担保物，与直接出借比特币本身并非同一概念。在前一种情况下，抵押品担保的是特定义务；在后一种情况下，它成为他人部署的资产，借款人的回报取决于一系列交易对手是否履行其义务。

允许二次放贷的中心化借贷

并非所有贷款机构都采用上述模式。在另一种由某些中心化平台使用的模式中，贷款机构接收比特币作为抵押品，并可能在合同中保留将其再次出借给另一方以获取利息的权利。虽然原始借款人仍欠美元债务，但贷款机构现在也依赖于二次借款人归还比特币。

这为贷款机构创造了额外的收入来源，但也引入了还款依赖风险。如果二次借款人违约，原始借款人的抵押品可能无法及时收回。2022年 Celsius、BlockFi 和 Voyager 的崩溃证明了这种链条断裂的后果：那些认为自己的抵押品安全存放的借款人，发现其资产已被用于使其在破产程序中沦为无担保债权人的方式。

Packaging Bitcoin in DeFi: Two-layer tracking mechanism

The third model is completely different. Coinbase launched cbBTC is a token that is endorsed on a 1:1 ratio by native bitcoins hosted by Coinbase. According to CoinGecko data, the current circulation of the token is approximately 95,900 cbBTC, worth approximately US$8.1 billion. When someone holds cbBTC, the native Bitcoin is kept by Coinbase as the custodian, while the token itself is freely traded on the blockchain network.

The token can then enter the lending agreement, forming two separate custody and risk layers: one is the native Bitcoin located in Coinbase, and the other is the cbBTC token located within the smart contract. How tokens are processed depends on the specific protocol they enter.

On Aave, the largest DeFi loan agreement with a total locked value of approximately US$19.5 billion, according to DeFiLlama, deposited tokens enter the liquidity pool and can be used as collateral for borrowers and earn supply interest for depositors. At Morpho (with a total locked position value of approximately $11.1 billion, according to DeFiLlama), the design separates collateral from loan assets. According to the agreement document, the collateral submitted by the borrower will not be lent to other borrowers and will not generate supply interest by default. Lenders earn interest by providing loan assets rather than collateral.

People who buy cbBTC on the secondary market do not need to personally package Bitcoin through Coinbase, just buy existing tokens. But they inherited their underlying custody arrangements, including any conditions set by Coinbase to redeem native BTC.

What happens when the loan ends or is not yet terminated

For each model, the path the borrower takes back Bitcoin depends on what happens subsequently:

• Ledn's escrow loan structure: Full repayment of the loan triggers the release of collateral back to the borrower. If the value of collateral falls significantly, Ledn may issue margin calls or liquidate part of the collateral to maintain loan-to-value ratios, consistent with any mortgage lending arrangement.
• A centralized model that allows secondary lending: A borrower's ability to recover Bitcoin depends not only on its own repayments, but also on the lender's ability to recall collateral from its deployment location.
• DeFi Domain: Repayments release collateral from smart contracts, but for packaging tokens, the borrower holds cbBTC instead of native Bitcoin. Converting this token to BTC requires going through Coinbase's unpacking process, which has its own terms and conditions.
• Liquidation scenario: If liquidation occurs in the DeFi agreement, collateral will be sold to cover the debt and the borrower will lose collateral completely, which is the same as for any margin loan.

Four questions every Bitcoin borrower should ask

The lending market offers more options than ever before, but the scope of the custody and risk models behind it has also expanded. Before using Bitcoin as collateral, these four questions can help you sort through the complexities:

1. Who holds the assets?
2. Who can use it and what is it for?
3. What evidence, certification reports, on-chain records or contractual terms can verify the arrangement?
4. What specific conditions determine whether you can get your Bitcoin back?

The answers vary by lender, protocol and structure, which is why it is worth asking these questions before Bitcoin leaves your wallet.