Do you remember when cryptocurrency was just an idea, and no one knew if it would catch on? In 2019, the world of crypto has grown very prominent. As an example, think about Bitcoin. Bitcoin was worth about $500 in May 2016.
Over 7,800% more than the first day, it was sold for over $44,000, a significant price jump. Due to this major rise in value, many people are interested in crypto.
There is volatility when there is fast growth. The term “Hold On for Dear Life” comes from the fact that prices in the crypto market change a lot. People who HODLers are crypto fans who will not sell their coins, even if the market changes. Holding on to crypto assets (HODLing) for the long run may be a good idea, but that doesn’t make them useful.
This is when crypto loans come in handy. Crypto lending is an interesting way for buyers and business owners to make money with digital assets. People who hold on to their crypto can take an interest in it without selling it by lending it to other people. This takes their crypto holdings from something they just hold onto into a machine that makes money.
Understanding Crypto Lending
Giving crypto is a lot like giving money in general. Some people call these interest payments “crypto dividends.” People who use this decentralized finance (DeFi) method can lend their cryptocurrency to people who need it in return for interest payments. Bitcoin lenders lend money and get interest on it, just like banks lend and earn interest. People can give both cryptocurrencies and stablecoins, which are digital assets that are linked to fiat currencies like the US dollar.
DeFi works like other banking systems, but it is not regulated similarly. This is important to remember. Many people have more freedom because there are fewer rules. However, lenders and buyers need to be aware of the risks.
How Crypto Lending Works for Borrowers
Someone who needs money can get a crypto loan without selling their crypto assets. A house is used as collateral for a mortgage, and digital assets are used as collateral for a crypto loan. Cryptocurrencies are used as collateral when someone wants to borrow money. After that, they repay the loan over time to regain their security. People can borrow money based on the value of their cryptocurrency without giving it up.
Flash loans let you get a crypto loan without putting up any collateral. They are hard to understand, so only people who have used crypto before should try them. One way to know if a buyer needs to put up collateral is by the loan-to-value (LTV) ratio. Let’s say that a site’s LTV number is 50%. You must invest $10,000 in crypto to get a $5,000 loan.
You cannot trade or sell the coin used as collateral until the loan is fully paid. Be aware of this. These rights will be taken away for a short time.
How Crypto Lending Works for Investors
Some people are against the deal. With a lending site, buyers can put their crypto assets to work and make money from the interest that people who borrow money pay. The process is simple: investors put in their crypto assets, and the lending site handles the loans and interest payments.
There is a wide range of interest rates on crypto lending platforms, depending on the platform and the type of asset being lent. For stablecoins, investors could pay interest rates up to 17% or between 3% and 7%.
If a user doesn’t repay a loan, the lender can sell the crypto assets used as collateral to recover the money. This method gives investors peace of mind, making crypto lending a good choice for people who want to make money from their digital assets.
Step-by-Step Process of Crypto Lending
A third-party platform works as a go-between for crypto lending, bringing together lenders and borrowers. In general, the steps are as follows:
1. Borrower Requests a Loan: The borrower chooses a crypto lending site and asks for a loan. There isn’t a lengthy application process like there is for standard bank loans.
2. Collateral Calculation: The platform uses the loan amount and the LTV ratio to determine how much cryptocurrency needs to be pledged as collateral.
3. Collateral Pledge: The renter is using their crypto as security.
4. Loan Financing: Borrowers fund the loan through the website, but they don’t usually see the transaction details.
5. Repayment: The user pays back the loan plus interest over a certain amount of time. Most sites don’t charge extra for paying back loans early.
6. Collateral Return: The user gets their collateral back once the loan is fully paid.
Although the rules and steps for each site may differ slightly, this is how the crypto-lending ecosystem generally works.
Choosing the Right Crypto Lending Platform
Picking a dependable crypto lending site is important for a good lending experience. When choosing a platform, here are some important things to keep in mind:
1. Interest Rates: People consider the main thing when picking a lending site. Find a site that gives you good interest rates on the crypto assets you want to invest in. A few sites offer interest rates as low as 0% and as high as 10%.
2. Platform Risks: Safety is very important in crypto. Check to see how often a site has had security problems and what steps it takes to keep user data safe. Fraud and theft on DeFi platforms will cost more than $10 billion in 2021 alone, so it’s important to pick a platform with strong security.
3. Costs: Compare the prices different sites charge for crypto assets.
4. Loan Duration: Check to see if the platform offers set or flexible loan terms, then choose the one that best suits your budget and goals.
5. Minimum Deposit Limits: Some sites require a minimum deposit. Make sure that the site you pick fits your investment goals.
6. Collateral Requirements: Collateral requirements are essential for people who want to borrow money. You can compare the collateral needed to get a loan on different sites.
7. Geo-Restrictions: Some platforms may have geographical limits, meaning people can’t use them in some areas. Make sure that the platform you pick can be used wherever you are.
You’ll also have to choose between an automated and a manual crypto lending site when you choose. People like automated platforms because they make loans easier and ensure that assets keep making money without needing to be watched constantly.
Leading Crypto Lending Platforms to Consider
It can be hard to know where to begin because there are so many crypto-lending sites. Here are a few of the best-known and most famous platforms:
BlockFi: A Comprehensive Crypto Solution
BlockFi has been around for a long time and provides many services, such as buying, selling, and dealing with cryptocurrency. It manages more than $10 million worth of crypto assets and lets you borrow up to 50% of the value of your crypto collateral. BlockFi also uses several security methods, such as Know Your Customer (KYC) protocols, to stop fraud. The U.S. does not offer BlockFi interest accounts, so people from that country should be aware of this.
Binance: The World’s Largest Crypto Exchange
It is the primary cryptocurrency exchange in the world, and its lending tool is one of the most used. The American version, Binance.US, lets you trade over 65 cryptocurrencies and has low fees: a flat 0.1% fee for spot deals and a 0.5% fee for buying and selling cryptocurrencies. When people use Binance’s coin, BNB, they can also get a 25% discount on trade fees.
Celsius: A High-Yield Lending Platform
Celsius has quickly grown into a big player in crypto loans. The platform offers interest rates of up to 17% APY on some digital assets, and payments are made weekly. Celsius lets people borrow money with interest rates as low as 1%, and there are no fees to borrow, transfer, or give coins.
CoinLoan: A Pioneer in Crypto Lending
CoinLoan was one of the first companies to rent crypto. They accept stablecoins, fiat, cryptocurrencies, and rare coins like Monero. CoinLoan lets users take out multiple loans simultaneously, which helps spread out risk. People know that the platform is safe and flexible enough for banks.
Maximizing Returns with the Best Crypto Lending Rates
The interest rate is one of the most important parts of crypto loans. Rates can be very different for different systems and asset types. Most loan rates for cryptocurrencies are between 3% and 8%. Rates for stablecoins, on the other hand, can be as high as 10% to 18%.
It’s smart to look at rates on multiple sites to get the best return on your crypto assets. However, remember that higher returns often mean higher risks, so you might want to spread your portfolio across several sites to spread the risk.
Conclusion
Some people who hold on to their assets want to do something else with them. Crypto loans look like a good choice for those people. Crypto lending can be a good way to make money if you do your research and choose a reputable site. You can borrow money against your assets or lend your crypto to make passive income without selling them.
As crypto lending grows in popularity, more sites are offering different things to investors and users. If you do it right, you can get the most out of your crypto assets, make money, and increase your crypto wealth through crypto loans.
