One of the most useful and convenient ways of managing your financial complications is borrowing money, which has never been easier than now — the market is full of lending offers, depending on each particular person’s needs. Technology opens up more and more financial opportunities for us — apart from online transactions and operating digital assets, and crypto lending has become available.
How Does Crypto Lending Work?
Apparently, not only banks supply us with necessary financial sources. When we talk about cryptocurrencies, there are a bunch of crypto lending platforms for lenders as well, which allow users to borrow money after leaving bitcoins as collaterals or investing bitcoins for interest (such a long-term investment is also called Holding).
So, what is the concept of lending crypto? A lending platform will receive your bitcoin in exchange for fiat (USD, EUR, etc.) — no matter whether you intend to start up a couple of new businesses or purchase some property, for instance, real estate — and give it back as soon as you are ready to return the money you’ve taken. Placing your bitcoin as a security that the loan will be paid back is a good idea in comparison with selling your digital money. The latter will make you pay the tax for receiving profit gained by the purchase.
Have you ever kept money in a bank account without getting any profit out of it? If you have any extra crypto assets that you are not planning to use in the foreseeable future, consider depositing them for interest. Instead of just lying there in your bitcoin wallet, they will bring you additional money. This will work like a savings account in a traditional banking system.
How Does The Crypto Lending Platform Calculate a Backed Loan?
Obviously, no crypto loans are given by the platforms just because a borrower promises they will return the credit — the rates of factors are taken into account. As we understand that bitcoins are extremely volatile, the lending platforms will consider your collateral value, measuring the LTV ratio.
What Is an LTV Ratio?
LTV stands for loan-to-value and determines how valuable your bitcoin is in order to take a loan. The lower the LTV ratio, the better chances you have that the lending platform will approve your crypto loan.
When Can Margin Calls Occur?
You may face a margin call if your LTV ratio becomes too high. In such a case, you should take action to improve the situation and lower the risk for the lending platform that has given you the loan. One of the options is placing more cryptocurrencies as collaterals. Another one is providing a certain sum in fiat in order to decrease the loan.
Crypto Lending Origination Fee
This is a little sum of money that has to be provided by a borrower for most of the crypto lending platforms. They take this small percentage as a service payment.
What Does APR Stand For?
APR is the annual percentage rate. This is the amount of money you are required to pay during the period of one calendar year, including the origination fee. Most cryptocurrency lending platforms will provide you with a loan calculator so that you will be able to figure out the exact APR. However, some platforms use non-standard systems of calculation. Discuss the issue with the company you have decided to cooperate with to avoid unwanted situations.
The Best Crypto Lending Platforms
You will find descriptions of the most prominent lending platforms on the market hereunder. Study the list and make a decision upon the one (or more) that suits your preferences best.
Nexo Crypto Lending
Nexo is one of the most reliable choices on the market. This crypto lending platform is well-known for its cryptocurrencies and fiat variability. Nexo claims to be able to provide users with loans in 40 different fiat currencies and supports more than 20 crypto assets to be placed as collaterals.
If you choose Nexo lending, your LTV ratio for Bitcoin and Ethereum backed loans will be 50%, for XRP — 40%, and for Nexo token — 30%. The amount of APR will not exceed 11.9% per year. What is more, take into account that the rates can be lowered if you return the loan value in Nexo tokens.
In 2017, Nexo tokens were issued in Nexo’s ICO. Unlike many of these, Nexo is SEC-compliant under regulation D, which basically makes it more an STO.
The potential bitcoin borrowers will be very pleased to know that apart from particular discount offers, Nexo pays 30% of the company’s profits to those people who hold Nexo tokens. The dividends are divided into regular and loyalty.
Basically, Nexo lending is a part of a larger European e-commerce company called Credissimo. Credissimo is a respected organization with more than 100 staff members. Recently, the firm has won a Forbes Business Award.
According to the feedback of those who have already had the experience of taking credit on this platform, Nexo is really trustworthy — it maintains an Excellent TrustPilot from its borrowers. An original whitepaper article describing this crypto lending platform in more detail is available here.
BlockFi Bitcoin Lending
BlockFi lending was created in 2017. This is a US-based crypto lending organization, which services are available in 35 stated of the USA. Borrowers can deposit bitcoin assets, ethereum, litecoin, and Gemini’s stable coin assets as a backup for their loans. This is what you have to do before the lending company approves your loan and the value:
- Successfully pass the platform’s verification;
- Prove that you own at least 15,000 US dollars in crypto assets;
- Prove that you don’t have any current liens;
- Prove that you don’t have bankruptcies.
This crypto lending company offers its cryptocurrency borrowers an APR of 6,5%. Their LTV is 50%.
According to many users’ reviews, BlockFi operates with fractional reserves and has been using their users’ cryptocurrencies placed as collateral to generate profit. This means they put the borrowers’ digital assets at serious risk.
Unchained Capital
Unchained Capital was founded by Joe Kelly and Dhruv Bansal in 2017 in the US. This bitcoin lending platform raised 3 million US dollars in a seed round from Ecliptic Capital and Starting Line. A cryptocurrency borrower might wish to use the services of this lender due to the following reason — they offer not only crypto loans but also a vault for your bitcoin or any crypto assets in a multi-sig address.
This cryptocurrency assets loan and cryptocurrencies lending platform will request a borrower to put collateral to a multi-sig address, which will be possible to access by you, Unchained Capital, and an outer manager. Any two keys can make the assets taken out. This is quite a reliable system because you are always able to control the status of your collateral, and the third party involved acts as a backup in case you lose your key or if the lender goes out of business.
For lenders, the interest payments rates for crypto-backed loans begin from 8.5% for a period of three calendar months, the origination fee is 1% or less, and the LTV for the loans is 50%. Borrowers are requested to deposit bitcoin (BTC) and ethereum assets. The minimum loan is 10.000 US dollars for American residents. Those users who are based outside the US can take out only a $100K loan for commercial purposes.
BitBond Crypto Lending
BitBond is a Germany-based crypto lender that was founded in 2013. This platform for lenders has over 20 staff members and has secured more than $13m in funding from its investors.
Unlike the other companies described above, BitBond does not demand that you deposit crypto collateral as a backup for your loan. All lenders have to do to get credit is prove that you are eligible for that.
If you decide to take out a loan from BitBond, you will have to pay a 2-3% origination fee and the interest payments of 1% each month. This system is a little more complex than a normal one-time payment + APR, so make sure you are aware of your payment schedule before applying.
You can also become an investor and support specific loans to gain profit. BitBond bitcoin lending platform promises that, in this case, a user can get 10% of APY or more.
Not everyone’s experience of cooperating with such crypto platforms is positive. As these loans are not backed by a bitcoin (BTC) or other cryptocurrencies, there is a potential risk you simply won’t get paid.
BitBond crypto lending platform has conducted an STO for its own BB1 tokens as well and got over $2 from smart contracts and investors around the world (outside the USA).
YouHodler Bitcoin Lending
YouHodler is a crypto loan and lending organization based in the European sector. You can take a loan in USD, EUR, GBP, CHF, or BTC from this lender, leaving a bitcoin (BTC )or other 20 allowed cryptocurrencies as collateral. The LTV ratio here is one of the highest on the market — 90%. The minimum loan you can take is $100, which also is non-standard.
Borrowers can opt for a term from 30 to 180 days to return the borrowed sum with loan fees varying from 1.70% to 7.50%. If you wish to support the crypto platform as a lender, YouHodler promises 12% APR returns, which is one of the highest percentages you can find. This lending platform is not widely advertised, though it has a very high rating on TrustPilot.
In Addition
There exist a very unsafe, still highly exploitable model of loans — flash loans. Flash loans are instant loans you can take (pioneered by the Defi lending protocol Aave) without placing any collateral. The idea is that these flash loans have to be paid back with a single blockchain transaction. This has been a hot topic for debates, as the procedure is extremely insecure, though this is a good opportunity to use if you are an experienced borrower.
Final Words
Technology is moving forward very fast. Apart from online cryptocurrency transactions, you may even borrow fiat for using cryptocurrency if you prove its value. There are numerous crypto services to look into today!
A bitcoin loan is indisputably a new word in modern banking. Many cryptocurrency holders have already put their digital assets in use to get profit as lenders, and the others have tried borrowing and found out that this is a simple way to get instant cash. So, how can you choose the most reliable company among all those platforms? Ask yourself the following questions:
- Are loans collateral backed?
- What is the offered payment schedule?
- What are the lending options?
- What are the interest rates?
- What range of cryptocurrencies can I use as a backup, if possible?
- What other services, apart from lending, does this platform offer?
- Does the firm use its lender’s and borrowers’ collaterals to generate profit?
Once you fully understand the terms and conditions and your own preferences concerning the service you need, opt for the crypto lending platform with the highest rating, and you will get maximum profit this way. Good luck!
FAQ
Are Crypto Lending Platforms Trustworthy?
Not all of them, though there are a number of factors, which can help you figure out whether you should rely on the company or not. First, find out whether the company uses its borrowers’ crypto assets as a backup or not. Then, look at the suggested LTV, APR, and APY. Study the interest rates and the minimum loan amount. Don’t forget to read the reviews about the platforms you are considering.
Can I Gain Profit From Being A Crypto Currency Lender?
If you don’t want your bitcoin assets or other types of cryptocurrency just to be held in your wallet, you can deposit these and gain profit from the crypto lending company. This works similarly to savings accounts, where you will get a certain percentage of interest rates for keeping your digital assets on a platform. Get professional investment advice if you are hesitating about using your crypto assets this way.
What Do I Need to Do to Borrow Fiat Crypto Currency?
Different platforms offer different conditions. If the crypto lending platform uses the borrowers’ collaterals as backup, they will need to evaluate your collateral value. Sometimes people have to prove they are eligible for the loan and will return the sum. In most cases, simply passing verification and providing the platform with your collateral will be enough to get your loan in fiat.
Can I Trust Flash Loans by Defi?
Definitely not. Flash loans were first introduced by Defi and have caused hot arguments. This is the easiest to get, though you must be prepared to be deceived. Study all conditions thoroughly before using Defi.
Which Crypto Lending Platforms Are the Most Popular Now?
Nexo, BlockFi, Unchained Capital, BitBond, and YouHodler are considered best, though people have to opt for a particular company depending on their personal expectations. Lending crypto is a very popular thing today, and not everyone who offers these services is professionals. Be careful about the choice you make, study the crypto markets, all the platforms offer, and make smart contracts only.
