Capital Requirement Calculator
Calculate the minimum capital required under Basel III for different asset types. Enter values in USD millions.
Total Risk-Weighted Assets: -
Required CET1 Capital (4.5% minimum): -
Total Capital Required (including buffers): -
Key Insights
- Crypto loans require 1250% risk weight due to lack of official classification
- A $20 million Bitcoin loan counts as $250 million in RWA
- Total capital required for crypto assets is 5-10x higher than the actual loan value
When you hear "regulatory capital requirements," you might think of dusty bank offices and complex spreadsheets. But in 2025, this isn’t just about traditional banks anymore. It’s about how financial systems - including those built on blockchain - stay stable when everything around them is changing fast. The rules that force banks to hold enough cash on hand to survive a crisis are now being tested by decentralized finance, crypto lending platforms, and tokenized assets that don’t fit neatly into old frameworks.
What Regulatory Capital Requirements Actually Mean
At its core, regulatory capital requirement means: how much real money a bank must keep tucked away so it doesn’t collapse if loans go bad or markets crash. It’s not about profit. It’s about survival. These rules were created after the 2008 financial crisis, when banks lost trillions because they had too little cushion. The U.S. alone spent over $426 billion bailing them out. That’s why regulators now demand banks hold capital in specific forms - mostly cash, retained earnings, and common stock - called Common Equity Tier 1 (CET1).
The global standard, Basel III, says banks must hold at least 7% of their risky assets as CET1 capital. But it’s not that simple. That 7% is just the floor. Add in buffers for big banks, economic cycles, and country-specific rules, and many institutions actually need 10% or more. In Australia, the effective minimum is 8-10.25%. In the U.S., large banks face a leverage ratio of 5%, meaning they can’t lend more than 20 times their capital - no matter how "safe" the loans look.
Why does this matter for blockchain? Because crypto platforms, DeFi protocols, and even some stablecoin issuers are starting to act like banks. They take deposits, lend money, and promise returns. But they don’t follow Basel III. They don’t report capital ratios. And if a major DeFi platform loses $10 billion in collateralized loans, who steps in? No one. That’s the gap.
The Three Tiers of Bank Capital - And Why They Matter
Regulators don’t treat all capital the same. There are three layers, ranked by how well they can absorb losses:
- Common Equity Tier 1 (CET1) - The best kind. It’s real money: common stock, retained earnings. No tricks. No promises. Just cash you can’t take back. Basel III says this must be at least 4.5% of risky assets, plus buffers.
- Additional Tier 1 (AT1) - Fancy instruments like perpetual bonds that can be wiped out if things go south. Think of them as emergency fire extinguishers. Banks use them to boost capital without diluting shareholders.
- Tier 2 - Subordinated debt and loan loss reserves. These kick in only if the bank is already failing - hence "gone concern" capital.
Here’s the catch: blockchain-based lenders don’t have any of these. A DeFi protocol might lock up $5 billion in ETH as collateral, but that’s not capital. It’s just collateral. If ETH crashes 50%, the protocol doesn’t have capital to absorb the loss - it just liquidates loans. No cushion. No safety net. That’s why regulators are watching closely.
Risk-Weighted Assets - The Hidden Math Behind the Numbers
Capital requirements aren’t based on total assets. They’re based on risk-weighted assets (RWA). A U.S. Treasury bond? 0% risk. A mortgage? 50%. A startup loan? 100%. Banks calculate RWA using either a standardized method (fixed weights) or their own internal models (if approved).
But here’s where blockchain breaks the system. What’s the risk weight of a crypto loan backed by Bitcoin? 100%? 200%? 500%? There’s no official answer. The Basel Committee hasn’t assigned risk weights to digital assets yet. So banks that lend to crypto firms are forced to use the highest possible weight - 1250% - because they can’t prove the asset is safe. That means a $10 million crypto loan could count as $125 million in RWA. Suddenly, the bank needs $8.75 million in capital just for that one loan.
That’s why most traditional banks avoid crypto lending entirely. The capital cost is too high. But some fintechs and crypto-native firms are trying to game the system - by labeling crypto assets as "collateral" instead of loans, or by using off-chain accounting. Regulators are cracking down. In 2024, the OCC fined two U.S. banks for misclassifying crypto exposures as low-risk.
Why Blockchain Is Challenging the Old Rules
Blockchain isn’t just another asset class. It’s a new financial architecture. Traditional capital rules assume:
- There’s a central entity responsible for losses (a bank).
- There’s a legal structure to enforce capital rules (a regulator).
- There’s transparency - financial statements are audited and reported.
DeFi protocols break all three. There’s no bank. No regulator. No audited balance sheet. A protocol like Aave or Compound can lend $3 billion without holding a single dollar of capital. It relies on over-collateralization - borrowers put up $150 worth of crypto to borrow $100. But that’s not capital. It’s just collateral. If the crypto market crashes, everyone gets liquidated. No one absorbs the loss. The system just resets.
And that’s dangerous. When Silicon Valley Bank collapsed in 2023, it had a 12.2% CET1 ratio - above the minimum. But it didn’t have liquidity. The same could happen in DeFi. A protocol could have 200% collateralization and still fail if everyone tries to withdraw at once. Capital rules don’t cover liquidity. And right now, DeFi doesn’t even track it.
What’s Being Done? The Push for Crypto Capital Rules
Regulators aren’t ignoring this. The Basel Committee has started working on crypto exposure guidelines. In November 2023, they announced plans to incorporate digital assets into capital frameworks by 2026. The goal? Create risk weights for Bitcoin, Ethereum, stablecoins, and DeFi exposures.
Early proposals suggest:
- Bitcoin and Ethereum: 100-150% risk weight (similar to corporate bonds)
- Stablecoins: 20% if fully backed by cash; 100% if algorithmic or partially backed
- DeFi lending: 150-200% risk weight due to smart contract and oracle risks
If adopted, this would force crypto lenders to hold capital. A DeFi platform lending $1 billion in ETH would need $150-200 million in capital. That’s a game-changer. It would kill most current DeFi protocols - unless they become regulated entities.
Some are already adapting. Circle, issuer of USDC, now holds $35 billion in reserves and publishes monthly audits. It’s not a bank, but it’s acting like one. In 2024, the NYDFS granted Circle a limited-purpose trust charter - making it subject to capital requirements under New York law. Other stablecoin issuers are following suit.
The Real Cost - And Who Pays
Higher capital requirements mean higher costs. For banks, that means tighter lending, higher interest rates, and less profit. The Federal Reserve found that a 1 percentage point rise in capital requirements raises mortgage rates by 15-20 basis points. That’s $15-20 more per month on a $300,000 loan.
For crypto, the cost is even steeper. If DeFi platforms are forced to hold capital, their yields will drop. Why? Because capital doesn’t earn interest. It sits idle. So if a protocol needs to hold $100 million in capital to lend $1 billion, its return on equity drops from 15% to 5%. That means lower APYs for users.
But here’s the trade-off: safety. In 2022, the FTX collapse wiped out $8 billion in customer funds. No capital rules. No protection. If similar rules applied to crypto platforms, that money might have been protected. The question isn’t whether regulation will come - it’s whether the industry will adapt before another collapse.
What’s Next? The Battle Between Innovation and Stability
By 2027, Basel IV will be fully in force. That means:
- More rigid capital rules
- Higher capital for derivatives and crypto exposures
- Stricter limits on internal models
Meanwhile, blockchain is moving faster than ever. Layer 2 networks, tokenized real-world assets, and decentralized insurance protocols are growing. But without capital buffers, they’re fragile.
The future won’t be traditional banks vs. crypto. It’ll be regulated entities vs. unregulated ones. And the regulators are already drafting the rules. The next big crypto crash won’t be caused by a bad algorithm. It’ll be caused by a lack of capital - just like 2008.
Those who understand this - banks, crypto firms, investors - will be the ones who survive. The rest will be left behind.
What is the minimum CET1 ratio for banks under Basel III?
The minimum Common Equity Tier 1 (CET1) ratio under Basel III is 4.5% of risk-weighted assets. But most banks must hold more due to additional buffers. Systemically important banks often need 7-10% or higher, depending on country and risk profile. In Australia, effective minimums reach 8-10.25% when all buffers are included.
Do crypto companies have to follow Basel III capital rules?
Currently, most crypto companies don’t have to follow Basel III because they’re not regulated as banks. But that’s changing. Regulators in the U.S., EU, and UK are drafting rules to classify certain crypto lenders and stablecoin issuers as financial institutions. Circle (USDC issuer) and Paxos are already under bank-like regulation in New York and elsewhere. Full enforcement is expected by 2026-2027.
Why are risk-weighted assets (RWA) so important?
RWA determines how much capital a bank needs. Not all assets are equally risky. A U.S. Treasury bond has a 0% risk weight. A corporate loan might be 100%. Crypto loans are currently treated as 1250% risk-weighted because there’s no official classification. Higher RWA = more capital needed. That’s why banks avoid crypto - it forces them to hold way more capital than the loan is worth.
Can DeFi protocols ever meet capital requirements?
Technically, yes - but only if they become regulated entities. Right now, DeFi protocols don’t hold capital. They rely on over-collateralization. But that’s not the same as capital. If regulators require DeFi platforms to hold CET1 capital, most would need to shut down or restructure as licensed financial institutions. Some are already exploring this path - for example, by partnering with licensed custodians or forming regulated subsidiaries.
How do capital rules affect everyday people?
They affect your loans, savings, and investments. Higher capital requirements mean banks lend less or charge more. Mortgage rates can rise by 15-20 basis points for every 1% increase in capital rules. For crypto users, stricter rules mean lower yields on lending platforms - because those platforms will need to hold capital instead of lending it all out. Safety comes at a cost.
Is there a risk that capital rules will stifle innovation in blockchain?
Yes - but not necessarily a bad one. Unregulated innovation led to the collapse of FTX, Celsius, and Terra. Capital rules won’t stop innovation - they’ll just force it to be responsible. The most successful blockchain projects will be those that build compliance into their design from day one. Think of it like seatbelts: they don’t stop cars from being fast, but they prevent disaster.
It's wild how we built this whole system on the idea that someone has to be in charge
But blockchain says nope, we're just code and math
And somehow that's supposed to be safer?
I don't know if it's genius or just a house of cards made of ETH
BASEL III IS A JOKE
They want to regulate crypto like it's 2008
But crypto doesn't even have a CEO to fire
They're gonna crash the whole thing trying to control it
The fundamental misunderstanding lies in conflating collateral with capital. Collateral is an asset pledged as security; capital is equity that absorbs losses. DeFi protocols operate on the former, but financial stability requires the latter. Without a legal personhood to hold liability, no amount of over-collateralization substitutes for a capital buffer. This is not a technical gap-it is a legal and philosophical one.
India has 500 million people using UPI every day-no capital rules, no banks in the middle, just instant payments
Why should crypto be different?
Maybe the old rules are just too slow for the new world
I get why regulators are nervous
But forcing DeFi to hold capital feels like making a bicycle wear a seatbelt
It might save you in a crash… but it also kills the whole point of riding
Okay but… what if we just… stopped pretending that banks are the only ones who can be trusted?
What if the real problem isn’t that crypto lacks capital… but that banks have been lying about theirs for decades?
Remember 2008? The banks had capital. They just… spent it on fancy derivatives and private jets.
So now we’re punishing the new kids because the old ones messed up?
That’s not justice. That’s revenge dressed up as regulation.
DeFi doesn’t need capital. It needs better code.
so like… if i lend 1000 eth on aave and it crashes… who gets the loss?
no one? lol
then why do we even call it finance?
:)
Let me get this straight-some guy in his basement with a server is going to be more stable than JPMorgan?
They’re gonna regulate crypto like it’s a bank?
Then let’s start by taxing every crypto transaction like income and make them file 1099s
And while we’re at it, let’s make them pay FDIC fees too
Because if they want to act like banks, they better act like them
There’s a quiet irony here: the very people who champion decentralization are now asking for centralized oversight to protect them from their own innovation.
Perhaps the real question isn’t whether DeFi should be regulated-but whether we can trust any system, centralized or not, to manage risk without human failure.
Oh wow, so now we’re gonna turn Bitcoin into a bank account?
Next they’ll make you wear a tie when you stake your ETH
Can I get a refund for my ‘decentralized future’ I bought in 2021?
Basel III is a trap. The Fed and IMF are using ‘capital requirements’ to kill crypto before it can expose their own Ponzi system.
They don’t want you to know that U.S. dollars are backed by nothing but debt and fear.
They’re terrified that crypto will show the world the truth: that capital doesn’t need banks.
They’re coming for your coins. Don’t let them win.
the whole thing feels like trying to put a square peg in a round hole
like… yeah sure you can force it… but it just breaks everything
and now we’re gonna make crypto do the same thing banks do?
but banks are the reason we’re here in the first place
we’re just trying to fix the mess they made
why are we making the new thing carry the old thing’s baggage?
Oh please. You think a 150% risk weight on ETH is harsh?
Try being a real bank that actually has to hold capital while some startup in a Discord server offers 20% APY with ‘no counterparty risk’
It’s not regulation-it’s survival
And if you can’t handle it, maybe you shouldn’t be in finance
Let me be clear: if you’re building a lending protocol, you need capital. Period.
Over-collateralization is a band-aid, not a solution.
Either you’re a financial institution or you’re a casino.
Choose one. Don’t try to have both.
Here’s what’s missing from this whole debate: liquidity.
Capital is about solvency. But what happens when everyone tries to withdraw at once?
DeFi has no lender of last resort. No Fed. No central bank.
That’s not a feature-it’s a ticking time bomb.
And yes, that’s why we need rules. Not to kill innovation. To make it last.
Ohhh so now you want to regulate DeFi? After all the scams? After all the rug pulls? After all the people who lost their life savings?
Finally! Took you long enough!
But here’s the thing-you’re still too late.
They’re already gone. The money’s gone. The people are gone.
And now you want to put rules on the ghosts?
What if the real innovation isn’t blockchain… but the idea that you don’t need a bank to be safe?
What if the problem isn’t that DeFi lacks capital… but that banks have lost our trust?
Maybe we don’t need to force crypto into old boxes… maybe we need to build new ones
Imagine if every time you lent money on a DeFi app, you had to lock up $10 in capital for every $100 you lent…
Would you still do it?
Probably not.
But would you feel safer?
Yeah. Honestly?
Yeah.
so like… if a bank has to hold 10% capital… and a DeFi app has 200% collateral… isn’t that just better?
why are we even talking about this
Capital? Seriously?
You think a machine can be responsible?
Code doesn’t feel fear.
Code doesn’t care if you lose your house.
It just executes.
That’s not finance.
That’s a game.
Look, I get it, I really do-I’m not some crypto bro who thinks blockchain will solve world hunger, but… I also remember when banks were too big to fail and we bailed them out with taxpayer money, and now we’re supposed to trust them to regulate the thing that was supposed to prevent this exact scenario?
It’s like asking the arsonist to design the fire code.
And don’t even get me started on how they’re going to measure risk on something that moves 30% in a day.
They don’t have the tools.
They don’t have the will.
And the people who do? They’re already gone, trading on Binance while the regulators are still arguing over whether NFTs are securities or just JPEGs.
why do you care so much about capital?
if i put 150 eth to borrow 100 usdc and it crashes… i lose my eth
who cares if the protocol has capital?
it’s not my money anyway
you’re just scared because you don’t understand it
Basel III is just the first step.
Next they’ll require every wallet to be KYC’d.
Then they’ll track your on-chain activity.
Then they’ll freeze your tokens if you ‘exceed risk thresholds’.
Then they’ll make you pay taxes on unrealized gains.
Then… they’ll shut it all down.
They don’t want you to have money outside their system.
They want control.
And they’ll use ‘capital requirements’ to get it.
Capital is for losers who can’t code.