Cryptocurrency traders are usually encouraged to hold onto their tokens in a crypto wallet for the long term. Rather than going through traditional finance outlets to cover unexpected expenses, traders may be able to cash in some crypto. Many cryptocurrency exchanges allow users to use cryptocurrency as collateral for a loan. Traders can also lend their digital assets in exchange for an attractive return compared to a traditional high-yield savings account. Take a look at how you can make your crypto assets work for you through crypto lending.
What is crypto lending?
Cryptocurrency is becoming a popular payment method and investment opportunity. You can use digital currencies to borrow money, or you can lend them and earn interest. One of the main benefits of a crypto loan is that, unlike traditional finance, your credit score isn’t considered apart of your eligibility. Crypto lending is more accessible to those without a financial history, those without a bank account, and self-employed workers who can’t meet strict lending criteria. Bitcoin (BTC) loans are instant and users can enjoy liquidity without triggering a taxable event. You can even adjust the terms of the loan as needed and switch between crypto-assets.
What are the features of crypto-backed loans?
Before jumping into crypto-backed loans, it helps to know about their features. Cryptocurrency lending platforms typically offer crypto loans with low interest rates. Crypto loans may be cheaper than credit cards and unsecured personal loans, but they aren’t as cheap as mortgages or car loans. There is a limit to how much you can borrow in a loan. Most lending platforms allow borrowers to take up to 50 percent of the value of their cryptocurrency. You can choose to receive your loan in the form of U.S. dollars or your choice of fiat currency. Crypto lenders don’t require a credit check when applying for a crypto-backed loan, which is good for borrowers with poor credit. Plus, crypto loans can be funded within a few hours, which makes them a good option for borrowers who need cash fast.
Crypto lending platforms are essentially brokers between lenders and borrowers. Lenders can use these platforms to earn interest on their digital assets and borrowers can get loans. Users of all digital currencies can earn interest on their crypto holdings in exchange for lending their crypto assets to other users. Lending platforms allow users to borrow fiat currency against their crypto holdings and use their holdings as collateral. This allows the crypto lending platform to seize the crypto assets in the event of default. These platforms feature attractive interest rates compared to traditional high yield savings accounts. CryptoVantage is a helpful investing guide when it comes to all things crypto, Bitcoin, and blockchain. They break down the ins and outs of crypto lending and offer their picks for the best lending services. Some of the top choice platforms include BlockFi, Nexo, Celsius Network, and YouHodler.
How can you get a crypto loan?
Two types of lending platforms offer crypto-backed loans, centralized (CeFi) and decentralized (DeFi). Centralized lending platforms such as BlockFi, Nexo, and Binance must comply with certain compliance rules and procedures. This crypto ecosystem requires borrowers to sign up for an account and undergo procedures to prevent fraud and money laundering. Centralized platforms have protocols to ensure the safety of borrowers’ collateral, such as safeguarding crypto assets in cold storage. Centralized crypto lending platforms use blockchain technology to record all account transactions. A centralized crypto ecosystem is a great way to earn interest in cryptocurrencies and stablecoins such as BTC, USDC, and DAI.
Decentralized (DeFi) lending platforms use code rather than people to process transactions. These platforms use algorithms and protocols that automate loan disbursements. No middleman requires a verification process with DeFi platforms, and because they are decentralized, all protocols can be accessed by anyone. The interest rates of DeFi crypto lending pales in comparison to CeFi lending platforms.
Crypto lending is a great way for users to grow their digital assets and make them work. CeFi and DeFi ecosystems allow users to both borrow and lend digital assets without the protocols of traditional finance.