Cryptocurrency evolving beyond the regular innovation of the finance world has yet again created a new segment where lending and borrowing of investment for cash has been made possible. This is one benefit that now comes with investing in crypto, being able to use your cryptocurrencies as collateral for loan collection. This is beneficial because no matter how small your crypto investments are, they can serve as collateral depending on the loan amount you want. These cryptocurrency loans are very much accessible offering to the hodl investors an easy way to gain liquidity from their crypto investments without selling any of the cryptocurrencies.
Crypto Loan Platform
A cryptocurrency loan is a segment of the crypto that involves the lending of cryptocurrency and interest is earned. These are meant for traders that wish to collect cash without actually selling out their cryptocurrency investments, therefore using it as collateral for liquid funds, in expectation of a future increase of their crypto asset. This segment of crypto is hosted by platforms that receive deposits of various kinds of crypto investments, ranging from the stable coin, etherum, bitcoin, and other valuable currencies, and in return with interest. The parties involved in these transactions are; the borrower, who needs liquid funds and thereby takes loans through the lending platform for some interest in exchange. And the lender, that has crypto and wants to gain additional income with it.
Categories Of Crypto Loans
The categories of crypto loans are just two, which are:
1. Custodial crypto (CeFi) loans
These loans are custodial, whereby an entity known to be central takes possession of the collateral. In this category, the trader cannot have any access to the asset he gave as collateral, the lender posses ownership of the asset for that period. The custodial crypto loans are very obtainable and inexpensive and the regular loans, but the lender enforces the terms. Most crypto loan platforms are custodial, cause it reduces the risk for lenders.
2. Non-custodial (DeFi) crypto loans
The Non-Custodial crypto loans otherwise known as Decentralised finance loans, unlike a custodial crypto loan, there is no dependant on centralized lenders to execute terms of the loans, rather they are dependant on smart contracts. In this DeFi crypto loan, the trader still has control of their assets' private keys until there is a default in the loan payment. But no direct cash can be given through this DeFi crypto loan, rather stable coins are given to be turned into cash. The interest rate for DeFi crypto loans is much higher than the CeFi loans.
Best Platforms For Crypto Loans
This is listed according to its categories.
CeFi Loan Platforms
- Nexo: just as Celsius, this is also a popular platform, it has assets of $12B with numerous users. It is more popular because it provides insurance worth over $375 million on all assets in their custody. LTV is a bit higher and has a low borrowing rate.
- BlockFi: this is among the largest CeFi platforms which is located in the United States and also regulated. It's the best platform for both beginners and intermediate investors. A financial institution such as Fidelity, Galaxy digital, and others backs this loan platform
- Celsius Network: this is a popular platform among users, having up to 500,000 users and has assets of over $10B. Its low borrowing rates, which is at 1% gave the platform its popularity. It also provides flexible LTV rates, but at least 50%
- Unchained Capital: this platform has special among other CeFi platforms. It provides transparency to the borrowers for their crypto assets, which aids security. For this loan platform, three private keys are required, whereby one is controlled each by the borrower, Unchained Capital, and by a third party. Even with this special feature, this platform only provides bitcoin loans and operates its services within the United States. Borrowers who wish to use this platform must make use of hardware wallets from coldcard, ledger, and so on. It also has a low LTV rate and has a high borrowing rate because of its high security DeFi Lending Platform
- Alchemix: compared to other DeFi loan platforms, Alchemix is a smaller platform. It makes use of a new interesting method providing loans to its users which pays them back with time. In this platform, the users deposit decentralized stablecoin to the smart contract and get a token in exchange. The Alchemix users can mint the token coin received to worth half the crypto asset that they deposit. Currently, it only collected decentralized stablecoin deposits, it also offers a 50% LTV rate.
- Aave: this platform is quite resourceful, as it offers a wide range of options for loan collection than others. In this platform, collateral is received from borrowers which are used to aid the platform, just as compound finance, but the contribution from the borrowers is denoted in tokens. It offers a high LTV rate than Makers and compound and its borrowing rates are quite low. This loan platform is the DeFi platform with the highest value due to its innovation and ability to change.
- Oasis Borrow: the Oasis borrow is a crypto loan platform that is created by the Maker ecosystem which supports decentralized stablecoin. This platform is essential to loan collection, and it's accessible to anyone with a crypto asset by opening up a Maker vault and then starting minting the decentralized stablecoin. The Oasis Borrow enables you to collect loans, by putting up your crypto asset as collateral. You have two options as to how to pay back the loan, either by minting an amount of decentralized stablecoin or paying back the loan you collected before you can be able to unlock your crypto asset. Makers are currently the largest DeFi loan platforms, they offer from 50% to 75% loan-to-value rate for every crypto loan and also receive high stability fees which can vary. The smart contract of the platforms liquidates any account that defaults in its loan payment automatically and charges a liquidation penalty fee of 13% and more, depending.
- Compound Finance: this is a loan platform whereby the users supply cryptos to aid the platform and from their deposit of crypto earn interest. The crypto invested or supplied by the users is portrayed as cTokens. The value of this cToken tends to increase over time and can be put up as collateral to collect a loan. The Loan-to-value (LTV) rates of the compound finance platform are quite higher than the Oasis borrow (MakerDAO). Apart from compound finance not having borrow fees, its default of loan payment penalty is low compared to makers. It only liquidates half of the crypto asset and charges a fixed liquidation penalty of 8%.