A crypto-backed loan lets you borrow cash against your Bitcoin or Ethereum without selling it. You keep the upside if prices rise — but the loan can be liquidated if prices fall too far. Here is exactly how it works, and where Stackit.ai fits.
What a crypto-backed loan is
You deposit crypto as collateral and borrow a smaller amount of stablecoins against it. Because you deposit more than you borrow, the loan is over-collateralized. There is no credit check, and on decentralized markets like Aave there is no fixed monthly payment — interest accrues on what you borrow, and you repay whenever you choose, as long as your collateral stays comfortably above the loan.
Loan-to-value (LTV) is the number that matters
LTV is your loan divided by your collateral. Borrow $5,000 against $10,000 of BTC and your LTV is 50%. As prices fall, your collateral shrinks, your LTV rises, and you move closer to the liquidation threshold — the point where the protocol sells your collateral to repay the loan. Keeping LTV conservative is what keeps you out of trouble; Stackit.ai targets a 35–50% operating band for exactly this reason.
What Stackit.ai adds
Stackit.ai is not a separate lender. It borrows on the Aave market and adds a policy layer: you set a protection point and a safer target LTV, and Stackit.ai monitors the position and repays debt toward that target as risk rises. It is designed to act before the position reaches Aave's liquidation line — which reduces liquidation risk, but does not eliminate it.
Worked example
What actually happens when Bitcoin drops
Start with $10,000 of BTC as collateral and borrow $5,000 — a 50% loan-to-value (LTV). A position is eligible for liquidation on Aave once its health factor falls below 1.0. Here is the same position through three drawdowns, left unmanaged versus defended by a Stackit.ai policy that repays debt back toward a 45% target as risk rises.
| BTC price move | Collateral value | Unmanaged Aave loan | Stackit.ai policy |
|---|---|---|---|
| −20% | $8,000 | LTV 63% · health 1.25Still holding, but drifting toward the liquidation line | Debt cut to $3,600 · LTV 45% · health 1.73Position kept; worst case is less borrowing power, not liquidation |
| −35% | $6,500 | LTV 77% · health 1.01Still holding, but drifting toward the liquidation line | Debt cut to $2,925 · LTV 45% · health 1.73Position kept; worst case is less borrowing power, not liquidation |
| −50% | $5,000 | LTV 100% · health 0.78Below 1.0 → liquidated: collateral sold at the bottom | Debt cut to $2,250 · LTV 45% · health 1.73Position kept; worst case is less borrowing power, not liquidation |
Unmanaged, at −50%
The debt never moved, so the health factor fell to 0.78 and the position is liquidated — the collateral is sold at the worst possible moment and the borrower is left with neither the loan nor the BTC.
Defended, at −50%
The policy repaid debt from $5,000 down to $2,250 on the way down, holding a 1.73 health factor. The borrower still holds the BTC and ETH. The cost of survival is real: that repayment spends an approved buffer or a portion of collateral, and you carry less debt and less borrowing power afterward.
Assumptions and limits. Illustrative only, not a projection or personalized quote. Uses an indicative 78% liquidation threshold (Aave V3 sets thresholds per market and governance — verify live), ignores interest and gas for clarity, and assumes protection executes in time. Sudden market gaps, oracle failures, network congestion, thin liquidity, smart-contract failure, missing permissions, or failed execution can still cause loss or liquidation. Protection is designed to reduce risk, not eliminate it.
Why some people borrow instead of selling
A long-term holder who needs cash can either sell — which realizes a taxable gain in many jurisdictions and gives up future upside — or borrow against the position and keep it. That is the real trade-off, and it only favors borrowing if you borrow conservatively and have a plan to repay. It is not free money, and it is not risk-free. When borrowing beats selling →
The honest risks
A crypto-backed loan can lose collateral through liquidation, and also carries smart-contract risk, oracle risk, interest-rate risk, and — on custodial platforms — counterparty and solvency risk. Protection automation reduces the liquidation risk; it cannot promise your position is always safe.
Sources
Important: Educational only, not financial, tax, or investment advice. Crypto-backed borrowing carries real risk of loss, including liquidation. Consider speaking with a qualified professional before borrowing.