Bitcoin-Backed Lending 2025:
Decoding Cost, Control & Hidden Risk
Executive Summary
The Bitcoin-collateralized loan market has swelled to an estimated US $14 billion in mid-2025, showing remarkable resilience and growth since the lender wipeouts of 2022. The market is now being pulled in two distinct directions. On one side, institutional adoption, driven by spot Bitcoin ETFs and clearer accounting guidance, is fueling a resurgence in custodial (CeFi) lending. On the other side, innovations in self-custody—like multisig escrows, DLCs, and new Layer 2 protocols like ArkadeOS—are giving borrowers unprecedented control and privacy, albeit at a higher price.
This creates a fundamental trade-off for borrowers: cost versus control. We anticipate the DeFi premium will stabilize at a few hundred basis points above large-book CeFi rates once the market matures. The lowest-rate loans often come with the highest, and most hidden, counterparty risks.
To cut through the complexity, Zone21 has developed a proprietary 13-Factor Risk Model that analyzes and scores Bitcoin-backed loan products from across the industry. Our model reveals that the seemingly attractive rates of many CeFi and "CeDeFi" products mask significant risks related to custody, rehypothecation, and transparency. Current risk scores on our platform range from a low of 29 for a "True DeFi" provider to 90 and above for higher-risk providers.
This report uses the Zone21 Risk Model as a lens to analyze the three main flavors of Bitcoin lending, decode their hidden risks, and equip borrowers to make more informed decisions.
What's inside:
- 2025 market snapshot with segment sizes, median APRs, and top lending desks
- Zone21 13-Factor Risk Model
- Cost vs. Control matrix for CeFi, CeDeFi, and “True DeFi”
- Key regulatory updates in the United States, Hong Kong, Singapore, Japan, and Australia
- Technology frontier: multisig escrows, DLCs, and ArkadeOS
- One-page borrower checklist to vet any Bitcoin-backed loan