Best Crypto Loan Platforms to Borrow Against Crypto
A cryptocurrency loan (crypto credit) is a type of loan in a digital currency, either with or without collateral. It is issued using centralized exchanges, DeFi projects, or special services such as Binance/Flash Loans.
Below we will consider the features of a crypto loan, how and where you can find the service, what the advantages and disadvantages are, and the best crypto loan platforms to borrow against crypto.
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What is a crypto loan?
A cryptocurrency loan is a service for a borrower to obtain digital assets from a user/service for a fee, with or without collateral. Depending on the platform, the transaction processing mechanism differs, but the principle is identical. Users can borrow money and give cryptocurrency themselves with a percentage of passive income. The risk of financial losses, in this case, is minimal because the transaction is carried out under the control of the CeFi or DeFi platforms.
The history of loans in cryptocurrency began in 2020 against the backdrop of an economic downturn and the development of the pandemic. As a result, interest rates decreased and loan terms were shortened. People began to look for alternative ways to receive funds, and one of them was crypto loans. They allowed you to quickly receive money and store it in a crypto wallet.
Most cryptocurrency loans are issued with collateral that exceeds the amount received. This is due to the risk of falling cryptocurrency prices and financial losses of the lender. The borrower is also at risk, which is especially important when the LTV coefficient is being used by the platform.
Why is this necessary
Making a loan in cryptocurrency without providing collateral or with collateral will be useful in the following cases:
- Increasing the amount on the account for trading digital assets without using margin and selling existing assets. Opens up additional opportunities for earning.
- An urgent need for money in a situation where a bearish trend prevails in the market.
- Favorable rates on a loan in cryptocurrency, allowing you to get the right amount.
This is only part of the situations when the registration of a crypto loan is an actual and reasonable decision. But it is important to take into account the terms of the loan, the timing of issuance, the availability of collateral and other points.
How does a crypto loan work?
There are three participants in the cryptocurrency loan:
- 1. The lender. Issues the declared amount.
- 2. The borrower. Receives a loan in cryptocurrency.
- 3. Broker. This function can be performed by a centralized or decentralized platform.
As a rule, the borrower transfers the collateral, after which he receives the declared amount. There are also options for unsecured crypto loans. In this case, the role of the lender is assumed by a smart contract issuing stablecoins, or a service for issuing money to the client. The site places digital assets in a pool, which later takes over the process management functions.
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Making a loan in the form of cryptocurrencies has the following form:
- Determination of the initial terms of the agreement with an indication of the loan amount and payment terms.
- The choice of a lender by the platform that is ready to transfer cryptocurrency on the stated terms.
- Transfer of one of the digital assets that the platform works with to the address of the smart contract as collateral (if it is taken.)
- Receiving an equivalent — a part of the collateral amount in the form of some kind of tokenized BTC.
- Exchange of received bitcoins on the Ethereum blockchain for simple bitcoins.
- Repayment of debt and receipt of the collateral back.
The scheme is simple and allows you to get money in cryptocurrency faster than it happens in banks. The advantage is that the loan processing is automatic and eliminates delays due to the human factor.
Pros and cons of a loan in cryptocurrency
Getting a loan in cryptocurrency has a number of advantages:
- Lack of binding to the credit rating.
- Accessibility for people with a bad credit history.
- Flexibility of conditions.
- The possibility of registration with or without collateral.
- Management of smart contracts that ensure the security of the transaction.
- The possibility of obtaining passive income (for creditors.)
Against the background of advantages, there are also a number of disadvantages:
- The risk of falling for fraudsters (especially important in the absence of collateral).
- High interest rate.
- The need to provide collateral for most cases.
- There is a great risk of liquidation when the cryptocurrency exchange rate decreases.
- Vulnerability of smart contracts to hackers.
- Increasing the overall risk of the investment portfolio when issuing a crypto loan.
The best crypto loan platforms to borrow against crypto
A large platform that has been operating since 2017, offering loan processing, opening a savings account, and other services. Crypto loaning is available at an interest rate of 4.5% per year. There is a loan calculator that allows you to calculate the amount of collateral, taking into account the amount received and the selected cryptocurrency.
- Disbursement of money on the same day.
- Repayment of part or all of the debt at any time.
- No fines and commissions for late repayment.
- Availability of mobile applications.
- The minimum loan amount is from $10,000.
- LTV — 50%.
- The margin requirement is 70%.
Transactions on the platform are safe, because the company’s activities are regulated. On the other hand, cryptocurrency accounts are not protected by SIPC and FDIC. In addition, three US states have banned the savings accounts.
The Binance credit platform, offering a cryptocurrency loan with an initial LTV of 65%. To apply for a loan, it is enough to be a registered user. After creating an account, you can get a loan in USDT or BUSD. Bitcoin or Ethereum can be used as collateral, and the loan term reaches six months. Interest is accrued every month and can be repaid before the principal amount is paid.
- Starting/liquidation LTV — 65/83%.
- The margin requirement is 75%.
- The daily interest rate is 0.025%.
- The loan term is 1 and 2 weeks, a month, 90 days, and six months.
To apply for a loan in cryptocurrency for a Binance, register, go to “Binance,” and then “Crypto loans.” Here you need to select an asset, the loan amount, the type of collateral and its size, the loan period. At the final stage, it remains to make a deal and repay the debt, taking into account the stated conditions.
The advantages of a crypto loan on Binance are a large selection of available tools, a transparent interface, the availability of credit staking, and the possibility of early repayment. In addition, there is a universal crypto system that allows you to trade, make payments, and withdraw money.
Is Binance safe to use? Read more here.
It is considered one of the best CeFi platforms with the possibility of issuing a loan in cryptocurrency with collateral. Bitcoin, Ethereum, Litecoin, Dash and other cryptocurrencies are used as collateral. Registration in stablecoins is possible.
- The minimum amount is from $1,000.
- The loan term is up to 5 years.
- The interest rate is from 0.1%.
- The deadline for issuing money is from 30 seconds.
You can apply for and make a crypto loan calculation on the official website or through the application. To get a loan, it is enough to choose a stablecoin or US dollars, specify the collateral and interest rate, select the loan term and confirm the details of the transaction.
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