Onchain lending vs centralized crypto loans comes down to who controls the loan, collateral and key decisions. Custody arrangements, rates and failure risks differ, though some products combine both models. With onchain lending, a borrower supplies crypto collateral to a smart contract or lending protocol and borrows an asset against it. Programmed rules govern collateral and liquidation. Aave V3 uses overcollateralized positions, and its documentation says a position becomes eligible for liquidation when its health factor falls below 1.