Did you know you can also use your crypto holdings to obtain loans or even lend out cryptos for additional profit? Many cryptocurrency fans buy, hold, and sell cryptocurrencies in attempt to profit.
A crypto loan is a secured loan that can be obtained from a cryptocurrency exchange or a crypto-lending platform. The crypto loan works similarly to a mortgage or a car loan in that you use your property as collateral, but in this case, you use your cryptocurrency to secure your loan funds.
A cryptocurrency loan can be given or received through a Decentralized Finance (DeFi) lending platform or a cryptocurrency exchange. The interest rate and terms of lending differ from one crypto lending platform to the next.
Three parties are involved in the lending of cryptocurrencies: the lender, the receiver, and the decentralized exchange or crypto exchange that provides the service. The lender is the person who makes the crypto loans; the receiver is the borrower; and the exchange is the platform that allows the transaction to take place.
Take a quick look at how these parties interact throughout the process.
To obtain a crypto loan, the receiver – the borrower – must have stored funds that will serve as collateral for the loan. He would then apply for a loan through the lending platform. The lending platform connects the lender and the borrower once the terms are met. The lender then begins to receive interest on the loan he has made from time to time. However, the borrower will not be able to access the amount he used as collateral until the loan is completely paid off.
A borrower who wants to trade Ether (ETH) but does not have the cash, only a position in Dogecoin (DOGE), could use the DOGE position as collateral to obtain a loan to invest in ETH. He won’t be able to access his DOGE until he repays the loan. Also, keep in mind that the borrower can use the borrowed loan however he sees fit, including withdrawing it for use outside of the platform from which he borrowed it.
The expected annual profitability for crypto lending varies by platform, but it is typically between 3% and 15% per year. The rate is also determined by the coin you are lending. The lending platform usually includes information about the expected yield per coin. Not all platforms have cryptos available for lending, you must initiate research to determine whether or not your desired crypto is available, as well as the expected annual return.
Liquidation can also occur when the borrower’s collateral can no longer cover the loan value – for example, if the collateral loses value or the amount borrowed gains value against the collateral. To keep a borrowed loan active, the borrowed amount must always be less than the collateral value.
Borrowers must ensure this by increasing their collateral or repaying a portion of their loan when it is reduced.
Crypto loans are classified into two types: flash loans and collateralized loans.
Flash Loans: with flash loans, you can borrow money for a short period of time without requiring collateral. They require that the liquidity be returned within one transaction block. To accomplish this, you must create a contract that requests a flash loan, executes the necessary steps, and repays the loan plus interest all within the same transaction.
A flash loan necessitates technical knowledge, making it more suitable for developers. However, tools such as CollateralSwap and DeFiSaver enable users to benefit from flash loans without requiring coding knowledge.
Collateralized loans: are the most common and the focus of this article; they are more accessible to regular crypto users. They require collateral and allow users to borrow funds for a longer period of time. Borrowers are typically granted loans of up to 50% of the amount used as collateral.
Crypto Lending Platforms
You receive a flat 12% interest on stablecoins, 7% on Ethereum and 7% on Bitcoin and it is all yours to keep. Funds can be added and removed in cryptocurrency or fiat currency daily. When you withdraw funds from the platform there is no fee for fiat withdrawals. There is a $20 for crypto withdrawals, charged in the asset you are withdrawing. AQRU accept payment by card, bank transfer, or wallet-to-wallet crypto payments (currently accepting BTC, ETH, USDT, USDC, DAI). The minimum deposit amount is $100. There isn’t a withdrawal minimum as long as you can cover the fee. These deposits are protected by our wallet insurance provided by Fireblocks. Deposit or remove funds: 20 minutes of you making a transfer, with fiat currency, this will depend on your bank and method of payment. Some transfers can take as little as an hour to be confirmed others, such as those sent internationally, can take up to 5 days to clear depending on where your bank is based. You can deposit or invest in Bitcoin (BTC), Ether (ETH) or multiple stablecoins (USDT, USDC, DAI).
Here you can find the best crypto lending rates for stablecoins on the market, as well as the best crypto credit and debit cards with great crypto rewards. Crypto.com offers a 6% APY on stablecoins such as USD Coin, Tether, TrueUSD, and Paxos Standard. And, greatest of all, there is no obligation to lock up your tokens for a minimum period of time in order to earn this APY of 6%. You can earn up to 14.5 percent on Polkadot, 8.5 percent on Bitcoin and Ethereum, and 6.5 percent on Solana based on a 3-month lock-up period and a minimum staking requirement of 40,000 CRO tokens. On Polygon and Shiba Inu, attractive rates of 14 percent and 5% are also available. When it comes to distribution frequency, Crypto.com will send your interest payments to you once a week. This allows you to reinvest the funds in another lending agreement. Crypto.com supports more than 250+ coins. Minimum deposits limits: varies depending on coin (0.005 BTC, 0.15 ETH) and maximum ($500,000 or USD equivalent).
BlockFi is a cryptocurrency exchange and wallet that provides services to individuals and businesses all over the world. It provides an interest-earning account, portfolio-backed loans, and commission-free trading. You can fund your account with USD, crypto, or stablecoins, as with many of the best cryptocurrency exchanges.
All of BlockFi’s lending accounts are adjustable. You have the option to withdraw funds whenever you want. BlockFi also accepts fiat money deposits, which can be useful if you want to diversify your holdings. There is no minimum or maximum deposit, and there is no lock-in period; flexible withdrawals are available.