Cryptocurrency lending is sizing up traditional finance despite being around for only a few years. The lengthy verification procedures of the traditional financial system and the competitive interest rates offered by the new option have contributed to the industry’s growth. The total value of crypto assets locked in lending is currently $11.02 billion, up from $588.508 million, one year ago.
Crypto lending is just as straightforward as is the case in the traditional system. Crypto holders present their virtual assets as collateral to acquire loans, which are paid out either in fiat or stablecoin. The alternative allows people to separate an immediate financial need from long-term crypto investment and evade their crypto funds’ taxable sale.
Cryptocurrency lending platforms operate as brokers between lenders and borrowers. They give users a chance to put their crypto as collateral and borrow fiat at a ratio. With the emergence of decentralized finance (DeFi), it is possible to lend out cryptocurrency to others in an extremely low-trust manner.
The interest offered on crypto loans is always changing. Generally, DeFi platforms offer a higher annual percentage rate (APR) across the board. While banks are recording adverse interest rates, crypto lenders are making money work for them. However, the industry is still in its infancy stage.
Understanding Crypto Loans
Understanding the core of crypto lending is quite simple if you are a finance enthusiast. Borrowers use their crypto assets as collateral to obtain different loans. At the same time, lenders provide the funds required for the loan at an agreed interest rate.
Crypto lending emerged as an alternative for HODLers to increase their assets’ productivity. With crypto lending, the old rules of assets no longer apply.
By using blockchain in this economic system, the new rules are shaped by smart contracts and algorithms to ensure the transactions remain autonomous and decentralized. However, the idea of crypto lending still seems too new, too risky, and too good to be true for many. You must gather all the information you need to understand crypto loans better.
Common Cryptocurrencies to Use as Collateral
Stablecoins are the most profitable option to supply as capital. Cryptos like Bitcoin and Ethereum have a variety of benefits. The two open up their use to anyone around the globe.
Bitcoin (BTC)
Bitcoin is advancing to the DeFi sector, primarily in borrowing and building off the liquid nature of Ethereum. Atomic loans are solutions that allow users to post BTC as collateral and receive stablecoins like USDC or DAI in return.
While we’ve also seen several token wrappers emerge (tBTC, wBTC, pBTC, etc.), it’s evident that most people want to capitalize on the vast market size Bitcoin provides as the king coin. Several users are mainly borrowing against assets with high market caps and liquid capital pools.
Ether (ETH)
Ether enforces Ethereum and comes in handy when paying for transactions. The liquid nature of ETH has led to the vast majority of loans being dominated by ETH as collateral.
It is supported by almost every borrowing platform and has quickly emerged as the leading asset to supply as collateral for a cryptocurrency-based loan despite being volatile.
Top Lending and Borrowing Platforms with The Lowest APR
Crypto lending has been steadily gaining popularity over the last few years. As such, there are lots of options available for those interested in using their crypto for loans. Naturally, different loan platforms offer additional benefits.
If you’re looking to borrow, a lower interest rate is inherently better. Here is a list of crypto lending platforms with the best rates;
1. Crypterium
Crypterium, a rising fintech star looking to provide seamless access to everyone’s financial services, is crucial. Already, it has one of the best crypto payment solutions in the landscape. It also has excellent crypto card and wallet services. Once a user signs into the Crypterium App, they can request a loan for up to 50% of their crypto collateral using bitcoin and Ethereum, which are popular collateral assets.
Recently, Crypterium announced the introduction of its crypto loan services with a 0% APR. The famous platform intends to eliminate financial hurdles and provide its users with competitive rates. They are doing this by providing flexible repayment term plans and continuing its mission to compete in the financial sector. Adding better features to the Crypterium app is an ongoing process.
Further, Crypterium’s loan service is insured to the tune of $100 million in custodial assets. Steven Parker, CEO of Crypterium, stated that compliance helps the startup to collaborate with more established financial institutions and provide improved products. You can borrow on the platform as low as $50, while the maximum is $5,000.
2. dYdX
dYdX is a powerful open trading platform that currently supports Lending, Borrowing, Margin trading. The platform has the best borrowing rate for ether at 0.44% per annum. Lending on dYdX is also a relatively low risk and passive way of earning interest on your crypto assets. Once you have deposited crypto into your dYdX account, you can make interest every second without having to do any maintenance or worry about who you are lending to.
However, the decentralized exchange’s interest rates keep changing based on the supply and demand of loans and deposits of the particular crypto-asset. All your holdings on dYdX are managed and stored on the blockchain using smart contracts, thus eliminating intermediary or third parties involved.
dYdX is available for everyone and does not require registration of an account or trust from a centralized party with possession of their assets.
3. Celsius Network
Launched in 2017, Celsius Network has become one of the leading players in the crypto lending landscape. Recently the platform announced the reduction of its minimum loan amount to $500. Celsius is now one of the most accessible crypto-lenders in the space.
Celsius has competitive interest rates buoyed by distributing a large chunk of its revenue among users. Hence, its interest rates start at 1% APR, depending on the LTV and the loan duration.
Celsius allows users to borrow 25%, 33%, or 50% of their collateral. The company lowered its loan minimum to $1,000 at the beginning of 2020. Celsius allows users to take loans without proof of income or credit check, giving them the security of cash-in-hand without selling their digital assets.
Celsius offers various customizable dollar loan options enabling customers to borrow against any of the 40+ cryptocurrencies supported in the Celsius wallet, including BTC, ETH, XRP, USDC, and the company’s native CEL token.
4. Nuo Network
Based in India, Nuo Network is a decentralized crypto lending protocol with a loan structure that does not require users to give digital assets ownership to the lender.
Additionally, Nuo leverages meta transactions, allowing users to access the network without ever paying transaction fees quickly. It locks collateral in smart contracts and instantly transfers funds to users without imposing KYC checks.
Nuo has serviced above $39 million worth of loans, and it offers some of the lowest interest rates. You can get as low as 2.3% APR when borrowing USDC with any of the platform’s supported coins. Nuo allows users to over-collateralize their loans. Still, the interest rates tend to fluctuate intermittently.
5. Compound Finance
Compound Finance is also a decentralized exchange that offers a borrowing rate of 3.06%. Rates fluctuate based on supply and demand. The collateral factor for ETH is 75. Users can also deposit one crypto-asset and request a loan of other digital tokens.
Compound Finance lending protocol enables users to borrow popular cryptocurrencies like Ether, Dai, and Tether. Compound Finance uses smart contracts that automate the storage and management of the capital getting to the platform.
The Future of Crypto Loans
Cryptocurrencies such as Bitcoin and Ether continue to gain popularity as enduring and valuable financial assets. During this pandemic period, wrought with corporate corruption, a non-inflationary digital currency that’s not governed by corporations or individuals sounds better. For this reason, we believe crypto loans have the potential to take over the loan industry.
Which of these platforms can’t you wait to try out for your crypto loans? Let us know in the comments section below.
