Author: Xiaobing
On August 25th, Galaxy Digital launched a Crypto Portfolio Line of Credit on its retail platform, GalaxyOne. Users can borrow USD or USDC at a 8.99% annual interest rate using a mix of BTC, ETH, and SOL (including staked SOL) as collateral. There are no account opening fees; interest is paid monthly; the credit line is revolving, available for repeated use, and funds are instantly accessible. The initial loan-to-value (LTV) ratio is 50% (meaning up to $50,000 can be borrowed against $100,000 worth of crypto assets), and the product is currently available in 40 US states.
Galaxy explicitly promises: clients' collateral assets will not be rehypothecated, and staked SOL will continue to earn staking rewards.
This is a product aimed at retail users, but the question behind it concerns the next phase of competition in the entire crypto industry: Can on-chain assets become purchasing power in the real world?
Product Breakdown
There are several notable design aspects of Galaxy's credit line.
First, it involves portfolio collateral, not single-asset collateral. Users can put BTC, ETH, and SOL into the same credit line, eliminating the need to apply for separate loans for each asset. This means volatility risk within the collateral portfolio is somewhat diversified; if ETH falls but BTC rises, the overall LTV of the portfolio may still remain healthy.
Second, SOL is included as eligible collateral, and even staked SOL can be used.
This is a clear statement from Galaxy regarding SOL's status as an institutional-grade asset. Prior to this, most crypto-collateralized lending products only supported BTC and ETH. The inclusion of SOL and the "staking uninterrupted" design directly appeal to Solana ecosystem token holders.
Third, the 8.99% interest rate is not cheap.
Crypto-collateralized lending rates offered by Coinbase via Morpho can be as low as 5% (but fluctuate with pool utilization), Ledn is around 10.4%, Figure is about 9.9%. Strike starts around 9.5%, Nexo advertises rates as low as 1.9% but requires holding NEXO tokens. Galaxy's 8.99% sits in the middle of the market; its selling point is not the lowest price but rather fixed, predictable rates combined with the security promise of no rehypothecation.
Fourth, there are no restrictions on fund usage. The borrowed USD or USDC can be used for daily expenses, paying taxes, a down payment on a house, investment opportunities, or trading US stocks and ETFs within the GalaxyOne platform. GalaxyOne already integrated crypto and stock trading functions when it launched in October 2024; the credit line product further connects the four links of "holding crypto, borrowing, spending, and investing."
Who Needs This Product
The core user profile for crypto-collateralized lending is: individuals holding significant crypto assets who do not wish to sell (due to bullish long-term views or to avoid triggering capital gains tax) but have short-term cash flow needs.
Under US tax law, selling crypto assets is a taxable event. Long-term capital gains tax rates for holdings over a year can reach 20%, plus a 3.8% Net Investment Income Tax, pushing the marginal rate close to 24%. If a holder has $1 million in unrealized BTC gains, selling could mean over $200,000 in taxes. But if they use BTC as collateral to borrow $500,000, they gain liquidity without triggering a tax event and continue holding the BTC. The cost is roughly $45,000 in annual interest (8.99% × $500k).
This calculation makes sense when BTC's appreciation exceeds the interest rate. BTC's annual returns in 2024 and 2025 both far exceeded 8.99%. However, if BTC enters a downtrend, borrowers face a double blow: asset depreciation + ongoing interest payments + potential margin calls or forced liquidations.
Galaxy's target clients are high-net-worth individuals, family offices, and founders. GalaxyOne Managing Director Zac Prince (former founder of BlockFi) stated that this product leverages Galaxy's institutional-grade infrastructure to serve retail clients.
Prince's background is noteworthy. The company he founded, BlockFi, was once a leader in the crypto-collateralized lending market and went bankrupt in 2022 due to the FTX fallout.
He is now back building a similar product at Galaxy but emphasizes the safety baseline of "no rehypothecation."
A Market That Is Contracting
Data from Galaxy's own research department shows the crypto-collateralized lending market is shrinking.
In Q1 2026, the total outstanding crypto-collateralized loans were $67.42 billion, down 5.1% from the previous quarter and down 14.3% from the Q3 2025 peak of $78.67 billion. It further contracted to $56.16 billion in Q2, a quarter-on-quarter decline of 16.78%.
But from a longer-term perspective, CeFi lending has rebounded 271.69% from its Q4 2023 low of $6.8 billion. The market is undergoing a post-FTX, post-BlockFi reshuffling and consolidation, not a return to zero. Tether dominates the CeFi lending market with a 62.25% share, followed by Maple and Nexo.
Galaxy's decision to enter during a market contraction may be based on two logics. First, contraction means competitors are exiting, making market share easier to capture. Second, Galaxy believes the demand for crypto-collateralized lending is structural (avoiding taxes + the rigid need to hold without selling), and short-term market contraction does not alter the long-term growth trend.
Crypto-collateralized lending is a leverage product. Its risk structure is the same as all leverage products: it makes your assets more efficient during uptrends but worsens your situation during downtrends.
A 50% initial LTV means if the collateral value drops more than 50%, borrowers may face margin calls or forced liquidation.
Galaxy has not yet publicly disclosed specific margin call thresholds and liquidation mechanisms; this is key information potential borrowers need to confirm before use.
The lessons from 2022 are not far behind.
BlockFi, Celsius, Voyager, and Genesis went bankrupt one after another, primarily because when crypto assets plummeted, collateral values fell below loan amounts, triggering chain liquidations. Another common factor in their downfall was rehypothecation; they used client collateral for other investments, and when those investments lost money, they lacked sufficient assets to repay clients. Galaxy's promise not to rehypothecate is a direct response to the 2022 disaster.
But eliminating rehypothecation only addresses platform-side risk, not borrower-side risk.
If BTC falls 40% to 50% from current levels, borrowers will still face margin call pressure. In extreme market conditions, being forced to liquidate collateral at a low point could result in greater losses than selling the assets and paying taxes in the first place.
The 8.99% interest rate is also not zero cost. Holding an asset that generates no yield for a year while paying nearly 9% interest is a significant burden for most retail users. The truly advantageous scenario for this product is during a crypto bull market, where asset appreciation far exceeds interest costs. In a sideways or bear market, it more closely resembles a liquidity trap.
The correct way to use crypto-collateralized lending is as a short-term liquidity tool, not a long-term leverage strategy.
