Most crypto holders believe trading is the only way to make money from their crypto holdings. On the contrary, cryptocurrency today offers many possibilities for individuals to boost their crypto savings and grow their investments. One of these is via crypto lending, whereby you loan out part of your crypto assets and earn interest.
Another is to deposit your credit funds and let them grow passively.
Via crypto lending platforms, individuals can also get fast access to loans. Unlike traditional lending platforms that require a good credit score, conduct KYC checks, and are at the whims of state regulation, crypto lending platforms allow users to access credit as painlessly as possible.
Thanks to the unregulated nature of cryptocurrency, however, virtually anyone can get access to a loan as long as they have internet connectivity. (This, at least, is the standard, but some crypto lending platforms will restrict use in certain jurisdictions depending on their regulatory requirements. As such, before considering any lending platform, always check whether your country is supported).
How Does Crypto Lending Work?
Crypto lending is a fairly straightforward process. The lender deposits crypto funds on a lending platform. The lending platform then makes the funds available to borrowers at a rate set by the lender.
To take a loan, borrowers create an account and take out a loan for a specified period. When that specified period expires, the borrower returns the funds, along with the pre-set interest rate.
To eliminate risks such as borrowers being unable to pay back the loan, crypto lending platforms usually institute guarantees or require borrowers to set up collateral or some other type of loan-backing system.
Most borrowers take out Crypto loans for two purposes: personal expenses or for margin trading. The personal expense borrowing is similar to the loan services in traditional finance.
Borrowers who take out the loan for margin trading do so because they don’t have enough capital for placing a trade. If they make a favorable trading decision, then they make a profit and pay back the loan easily. If the trade goes awry, they have no choice but to meet the loss and pay back the loan out of their pocket.
The Advantages of Crypto Lending
- Very favorable transaction fees, especially when compared to the traditional lending system
- Borrowers do not need to have a bank account (for the 1.7 billion unbanked people, crypto lending is likely their only option)
- Quick confirmation time
- No byzantine procedures so prevalent in the traditional lending system
- Diversified loan options
- No discrimination based on nationality
The risks with crypto lending
- A higher default rate when compared to traditional loans
- The lending platforms are prone to online attacks
- The volatility of cryptocurrencies that can cause lenders to lose profits or force borrowers to pay more than they borrowed
With that, let’s look at some of the best crypto lending platforms in the industry.
Coinloan is an Estonia-based peer-to-peer lending platform where borrowers can take out crypto-collateralized loans. Clients can also earn interest simply by “parking money” on CoinLoan and letting it work for them.
CoinLoan imposes no credit history checks or KYC procedures. The loan repayment period goes from 7 days up to 3 years, and the platform doesn’t impose any extra fees or penalties. Everyone’s funds are put under the maximum security possible – with cold storage wallets and distributed key storage being the standard.
Coinloan’s lending process is as follows: Borrowers deposit part of their cryptocurrency portfolio as collateral. Borrowers are furnished with the exact figures for the loan contract beforehand. They’re also granted flexible lending conditions, are not submitted to any credit checks, and are offered convenient withdrawal procedures.
Lenders are offered with these guarantees: First, the platform is licensed in the EU and is subjected to various checks and compliance. As such, lenders on the platform are guaranteed repayment of their loan, and their transactions are fully protected with SSL-encryption.
This is a crypto-lender based out of Cyprus and Switzerland and lends both crypto and fiat loans backed by crypto.
Its Turbocharge service allows borrowers to take out additional crypto and use it as collateral for other loans. Its MuliHODL feature allows users to boost their holdings by “playing with their crypto and finding the right balance,” which means making small and careful trades with calculated risk. YouHodler also has a wallet available for iOS and Android.
Another thing YouHODLER has going for it is their service which allows borrowers to access instant cash from the platform’s fiat-base funds. This eliminates the need for borrowers to search for a compatible lender, saving time and allowing them to access cash quickly.
3. SALT Lending
Launched in 2016, US-based SALT Lending was one of the first crypto lending platforms in the space. The platform is one of the trusted around and for a good reason. Borrowers can take out crypto-backed loans on a peer-to-peer platform, while also using crypto as collateral.
SALT’s lending procedure is straightforward. Users don’t need to undergo any background verification, and can usually receive the loan the same day. Loan terms are also tailored according to the borrower’s needs, from loan-to-value ratio to loan length.
When it comes to security, SALT Lending goes the whole nine yards. From backing all crypto assets with insurance, to keeping crypto funds in cold wallets. Currently, SALT services loans are available in a select 35 US states, plus Bermuda, Brazil, New Zealand, Puerto Rico, Vietnam, the UK, UAE, Switzerland, and Hong Kong.
Launched in 2017, US-based BlockFi offers two products; an interest account and crypto-backed loans. The BlockFi Interest Account lets your crypto work for you by putting it up for monthly interest. Users can earn compound interest on their crypto, boosting their savings in these cryptocurrencies; Bitcoin, Ether, and Gemini Dollar (GUSD).
For crypto-backed loans, BlockFi clients can use their crypto holding as collateral and unlock up to 50% the value of their assets in US dollars. Moreover, borrowers get the funds on the same day through bank wire or stable coin.
Individuals can use the BlockFi loans for pretty much any use, from paying off credit card debt to paying school fees or a home. Small businesses can take out loans to expand their business or to help them pay employees. Currently, BlockFi supports 46 states and all other countries except those with US sanctions.
Launched in 2016, Hong Kong-based Crypto.com is a crypto lending platform that also offers exchange-based crypto trading, investment options, and crypto payment gateway services for merchants.
Crypto.com clients can get instant loans without going through convoluted background checks. There also are no fixed repayment schedules or deadlines or late payment penalties. You can repay at your own pace at any time, and any amount, in the 12 months upon the start of the credit period.
Crypto.com also allows users to earn interest on their deposits. Currently, investors can earn interest on the following cryptocurrencies: Bitcoin, Ethereum, Ripple, Binance, Chainlink, Maker, Pax Gold, TrueUSD, Paxos Standard, USD Coin, and Tether.
Celsius.Network was founded in 2017 with the aim of leveraging blockchain technology to empower individuals with “unprecedented economic opportunities, financial freedom, and income equality.”
Customers can receive loan facilities on collateral-based credit lines on loan terms of 6 months, 1 year, 2 years, or 3 years. The platform imposes no penalties for defaulted loans – failure to pay back the loan within the specified loan term will also lead to the liquidation of your collateral.
Like many other crypto loan platforms, Celsius.Network does not conduct credit checks, and loans are approved within minutes. The platform lets borrowers deposit their collateral in either Bitcoin, Bitcoin Cash, Litecoin, Ethereum, Ripple, and DASH. Loans are given in Tether, Fiat, some stablecoins, and Celsius’s own native token – the CEL token.
Users can also deposit CEL, Bitcoin, Ethereum, Litecoin, Ethereum, OMG, Bitcoin Cash, EOS, and other crypto-assets and earn interest.
As you can see, there are options aplenty for crypto-based lending services. With these platforms, anyone from anywhere can access a loan regardless of their location, credit history, nationality, and whether they’re banked or not.
While all platforms offer the same kind of service, there are the subtleties with each service that differentiates it from the others. These differences lie in loan repayment schedules, supported currencies, loan terms, loan-to-value ratios, and so on. As such, you need to read the fine print and discover which platform works for you.
Finally, ensure to read and understand any terms and conditions for any platform, and check the legality and tax requirements for crypto-based loans in your jurisdiction.