How Digital Collateral is Reshaping the Credit Market
By Thomas Münch, Product Owner Crypto Solutions at Sopra Financial Technology
Digital collateral is emerging as a major new component in the credit market. Despite ongoing operational and supervisory challenges, MiCAR now provides the first clear regulatory framework of its kind. This article outlines the conditions under which crypto-backed lending can reach market maturity, demonstrating which models are suited to scalable implementation.
Artificial intelligence is already having a tangible impact on credit processes. It accelerates document analysis, improves assessments and supports adherence to regulatory requirements. For crypto-secured loans, however, the situation is different: interest is growing, but established standards, regulatory clarity and mature processes are still lacking. Therefore, crypto loans have reached the same point as AI did a few years ago: the threshold of becoming a viable product.
There are strong indications that this market is professionalising quickly. The demand exists, and so do the basic regulatory conditions. For the first time, the European Markets in Crypto-Assets Regulation (MiCAR) provides a precise definition of how institutions can offer crypto-backed lending in a regulated environment. MiCAR requires banks to operate as Crypto Asset Service Providers, subject to authorisation, supervision and harmonised reporting obligations. Many of the required structures already exist. Processes for KYC, AML, risk management and reporting can be used directly, allowing institutions to rely on established compliance frameworks.
As a result, a regulatory framework is emerging that strengthens trust and supports scalability across the European single market. Products no longer need country-specific authorisations but can be rolled out according to a uniform standard. For lending platforms, this marks the point at which crypto-backed lending can move beyond experimentation and develop into a regulated business segment with clear parameters.
Operational Requirements
Operational execution remains the main bottleneck. The greatest challenge lies in the supervisory assessment of collateral: as long as Bitcoin is classified as an unsecured loan under the CRR framework, capital requirements remain high. For many institutions, this is a significant obstacle to broader adoption.
Technical integration poses an additional challenge. For a crypto-secured loan to work, it must be fully integrated into existing credit and risk processes – from onboarding and custody to the automated monitoring of loan-to-value ratios. This requires a technical architecture which connects wallets, custodians, trading venues, and core banking systems.
Custody itself is demanding. Segregated wallets and multisignature structures are essential to ensure that collateral is clearly attributable, insolvency-proof and fully transparent. Institutions must also maintain monitoring systems that trigger margin calls automatically and enable immediate liquidation when required. On top of this, there are increased compliance requirements. Without automation, these would lead to considerable effort and operational risk.
Models for Scalable Implementation
To develop crypto-backed lending beyond pilot projects, institutions need models that are both regulatorily sound and operationally manageable.
One approach involves transferring the loan receivable to a specialised third party immediately after issuance. The bank remains the formal lender without retaining the exposure on its balance sheet. For institutions with a limited hunger for risks or restricted capital resources, this can be a viable option though it partially shifts the customer interface.
A more sustainable model involves a regulated custodian holding the collateral and issuing a guarantee to the bank for the repayment – regardless of market movements. This guarantee is structured as eligible collateral under the CRR framework and significantly reduces capital requirements. For lending platforms, this model combines regulatory compatibility with operational efficiency while maintaining the direct customer relationship.
Outlook
A pilot project by Sopra Financial Technology with VR Bank Bayern Mitte and 21bitcoin illustrates how such a model can be put into practice. An integrated architecture is being developed that consolidates custody, risk management, and lending within a fully compliant framework. The technical development is nearing completion, after which the mandatory product approval process will begin.
With a market launch planned for summer 2026, the concept will enter real-world operation for the first time. For the participating institutions, it offers a chance to gain early experience and establish a robust framework that can later be extended to other market participants. The project signals a broader shift: crypto-secured lending is moving beyond its experimental stage and evolving into a scalable, market-ready offering – one that is likely to shape the future of digital lending in Europe.
This insight was published in the DLA Quarterly Briefing 4/25 on December 30, 2025.
Photo Credit:
- Thomas Münch: Sopra Financial Technology