In today’s evolving financial landscape, Bitcoin holders no longer need to sell their BTC to access liquidity. Instead, they can leverage their digital assets by using Bitcoin as collateral to secure a loan—typically in stablecoins—without giving up ownership of their long-term holdings. This powerful financial tool enables users to maintain exposure to Bitcoin’s price appreciation while unlocking capital for short-term needs.
This guide explores how Bitcoin-collateralized loans work, the differences between centralized and decentralized lending platforms, and how protocols like Zero on Sovryn offer unique advantages—including 0% interest loans. We’ll also cover how you can earn yield by providing liquidity, all within a secure, non-custodial environment.
What Are Bitcoin-Collateralized Loans?
Bitcoin-collateralized loans are financial instruments where borrowers pledge their BTC as security in exchange for a loan, usually in stablecoins or fiat currency. The collateral ensures lenders are protected—if a borrower defaults, the lender can liquidate the Bitcoin to recover the loaned amount.
These loans are especially popular in the crypto space because they allow investors to access cash without triggering taxable events that come with selling Bitcoin. Most platforms require overcollateralization, meaning the value of the BTC provided exceeds the loan amount. This buffer protects against market volatility and reduces risk for the lending system.
How Do Bitcoin-Backed Loans Work?
Bitcoin-backed loans operate on either centralized finance (CeFi) or decentralized finance (DeFi) platforms, each offering distinct features.
Centralized Lending Platforms (CeFi)
CeFi platforms function similarly to traditional banks but within the crypto ecosystem. They allow users to borrow fiat or stablecoins using BTC as collateral. These platforms are often easier to navigate for beginners and may offer customer support and regulated environments.
However, they require users to trust a central authority with their assets, which compromises privacy and control. Additionally, withdrawal restrictions or platform insolvency could pose risks.
Decentralized Lending Platforms (DeFi)
DeFi lending platforms eliminate intermediaries by using smart contracts to automate the borrowing process. These systems are non-custodial, meaning users retain full control of their funds at all times.
While DeFi platforms typically only offer stablecoin loans (not fiat), they provide greater transparency, censorship resistance, and often more competitive terms. One standout example is Sovryn’s Zero protocol, which offers 0% interest loans—a rare advantage in the lending space.
👉 Discover how you can borrow without paying ongoing interest—explore your options today.
Benefits and Drawbacks of Using Bitcoin as Collateral
Like any financial decision, using Bitcoin as collateral comes with trade-offs. Understanding both sides helps borrowers make informed choices.
Advantages
- No Need to Sell BTC: Preserve your Bitcoin holdings and potential future gains.
- Fast Access to Funds: Loans are often processed within minutes, especially on DeFi platforms.
- Global Accessibility: Bitcoin-backed loans are available worldwide, with minimal geographic restrictions.
- No Credit Checks: Most platforms don’t require traditional credit assessments.
Limitations & Considerations
- Volatility Risk: Sharp drops in Bitcoin’s price can trigger loan liquidation, resulting in loss of collateral.
- Overcollateralization Requirements: You must lock up more value in BTC than you borrow—typically 110% or higher.
- Variable Interest Rates: Some platforms charge fluctuating rates, making long-term planning difficult.
- Platform-Specific Fees: Interest and service fees vary across providers.
One notable exception is Sovryn’s Zero protocol, which eliminates interest charges entirely—offering borrowers a stablecoin loan at just a small one-time fee.
How to Get a 0% Interest Loan Using Bitcoin on Sovryn’s Zero Protocol
Sovryn has introduced Zero, a groundbreaking DeFi protocol that allows users to borrow stablecoins at 0% interest using Bitcoin as collateral. This innovative solution combines low entry barriers with high efficiency and user autonomy.
Key Features of Zero
- 0% Interest: Borrow without accruing daily or monthly interest.
- 110% Collateral Ratio: One of the lowest overcollateralization thresholds in DeFi.
- Stablecoin Loans: Receive loans in dollar-pegged stablecoins for predictable value.
- Non-Custodial & Permissionless: Full control over your assets at all times.
When you open a Line of Credit (LoC) on Zero, your BTC (in the form of RBTC) is locked as collateral. If you fail to repay and the collateral ratio falls below 110%, your position is liquidated. The debt is covered by the Stability Pool, and your collateral is transferred there.
The Role of the Stability Pool
The Stability Pool acts as the first line of defense against undercollateralized loans. Liquidity providers deposit stablecoins into this pool and earn rewards in SOV, Sovryn’s native token, currently offering around 5% APR. These rewards are liquid and can be claimed or sold anytime.
Additionally, users can boost returns by staking SOV to gain voting rights and additional yield opportunities.
👉 Learn how you can start earning yield on idle assets—see what’s possible with decentralized finance.
How to Get Started
To use Zero on Sovryn:
- Connect your wallet to the Sovryn platform.
- Switch to the Rootstock (RSK) blockchain, where Zero operates.
- Deposit RBTC (Bitcoin bridged to RSK) as collateral.
- Open a Line of Credit and receive your stablecoin loan instantly.
Note: If you’re using BOB or another chain, you’ll need to switch networks before proceeding.
Frequently Asked Questions (FAQs)
Can you get a loan using Bitcoin as collateral?
Yes, absolutely. Many platforms allow you to use Bitcoin as collateral for loans in stablecoins or fiat. On Sovryn’s Zero protocol, you can get a stablecoin loan at 0% interest—paying only a small one-time fee.
How much can I borrow against my Bitcoin?
On Sovryn, the minimum collateral ratio is 110%. This means for every $100 you want to borrow, you must deposit $110 worth of RBTC. The system enforces this ratio to protect against market volatility.
What happens if my loan gets liquidated?
If your collateral ratio drops below 110%, your Line of Credit is liquidated. The Stability Pool covers the debt, and your RBTC collateral is transferred to the pool. You lose access to the collateral, so it’s crucial to monitor your position.
Are there interest charges on Sovryn’s Zero loans?
No. Zero protocol offers 0% interest loans. You only pay a one-time borrowing fee when opening your Line of Credit.
Can I earn yield by participating in the protocol?
Yes. By providing liquidity to the Stability Pool, you earn SOV rewards at approximately 5% APR. You can also stake SOV for additional benefits like governance rights and bonus yields.
Is my collateral safe on Sovryn?
Sovryn is a non-custodial platform—your funds are secured by smart contracts, not a centralized entity. As long as you manage your private keys and monitor your collateral ratio, your assets remain under your control.
👉 Ready to unlock your Bitcoin’s potential? Start borrowing or earning today.
By leveraging Bitcoin as collateral through innovative DeFi protocols like Zero on Sovryn, users gain unprecedented financial flexibility. Whether you're looking to access liquidity without selling BTC or earn passive income by supporting the lending ecosystem, these tools offer powerful opportunities in the decentralized economy.
With 0% interest loans, low collateral ratios, and transparent mechanics, now is an ideal time to explore what’s possible when Bitcoin meets decentralized finance.