There are as many opinions in crypto as many people involved.
Some say cryptocurrencies like Bitcoin and others are only suitable as a store of value while some see them only as a medium of exchange.
But nothing becomes a store of value just like that !!
It takes time, and it takes a long time.
But in today’s hyperconnected world you can comfortably assume that 10 years more should be enough for cryptocurrencies like Bitcoin to be considered as a store of value.
10 years is still long for some of us, but the good thing is that some usecases like the medium of exchange, lending, borrowing, refinancing, cash-backs, insurance can be done right now !!
This arm of decentralized cryptocurrencies is called decentralized finance (DeFi)
And amongst this, crypto lending, i.e., crypto loans, is the most exciting. So lets us first see what they are and how do they work??
What Are Crypto Backed Loans & How Crypto Loans Work?
Crypto loans, as its name signifies are the loans that one can take-up against the cryptocurrencies that one holds. In this type of loans, the crypto you own acts like collateral, and you can then borrow money in USD, EUR or a stablecoin in some ration of the value of your collateral.
The best thing about crypto loans is that you don’t need a credit history, or a bank account or a FICO score to get your loans. A lot of paperwork and operational work is also discounted in crypto loans. That’s why crypto loans are very easy and almost instantaneous to get.
So basically here how they work:
The cryptocurrencies (like BTC, ETH or XRP) that you own needs to be collateralized with as much as personal information that you can provide to a crypto loan platform. Once you do that all these platforms have different LTV ratios set to provide you a loan. So for example, if the LTV is 50 % and you have collateralized 20,000 USD worth of crypto, then you are entitled to borrow up to USD 10,000.
Plus for the borrowed $10,000 you need to pay the interest rate that you have agreed with the platform or the lender. For example, if you have agreed for 5% annual interest rate, you will be required to pay $500 annually for borrowing $10,000 against your original collateral of $20,000.
Now, let say after six months of your borrowing, the total worth of your cryptocurrencies has increased to $40,000 and this now makes you eligible for more $10,000. This happens because the total value of your line of credit has increased due increase the value of your collateral. But be aware that the vice-versa is also true !!
This is also called as, the instant crypto line of credit.
5 Best Cryptocurrency Lending Platforms & Programs
|Crypto Lending Program||LTV Upto||APR|
|BlockFi (Get Loan Now)||50%||4.50%|
|Nexo (Get Loan Now)||20-50%||8.00%|
|CoinLoan (Get Loan Now)||70%||10.00%|
|Salt Lending (Get Loan Now)||30-50%||5.99%|
|Celsius (Get Loan Now)||50%||5%|
BlockFi is one of the pioneer companies to raise institutional funding for their crypto backed loan start-up. At BlockFi you can borrow from $2000 to $100 million at an LTV up to 50%. The annual rate of interest differs for how much duration one is borrowing, but their lowest starting rate is 4.5 % APR.
To be able to use BlockFi you need to have atleast $4000 or more in crypto, and currently, BlockFi is available throughout the US except (NV, SD, VT or HI).
Nexo is backed by Credissimo, which is a leading European fintech group serving millions of customers over the last 10 years. And now they have stepped into crypto with the world’s first instant crypto loans.
At Nexo, you can get loans from $1000 to $2 million for tenure up to 1 year. The interest rates are 8% f0r NEXO tokens and 16% for other cryptocurrencies on an annual basis.
Lastly, you have the option of having your LTV between $20% to 50%.
CoinLoan is another crypto lending platform that provides cryptocurrency loan to crypto holders. But it is a bit different from the previous two we discussed. CoinLoan is a P2P lending platform where borrowers get money without selling cryptocurrencies, and investors offer loan to earn competitive returns.
On CoinLoan you can get loans up to tenure of 3 years and can borrow as little as $50 provided you have sufficient collateral. Another good thing about this platform is that your LTV can be up to 70%.
#4. Salt Lending
Salt Lending touts crypto holders to HODL their crypto and spends their cash.
Through Salt Lending you can get loans from $5000 to $100 million depending upon how much collateral you can put in. But unlike other platforms, you need to purchase membership of the platform to get started here.
The loan APRs start here from 5.99%, and you can get an LTV of 30% to 50% on your crypto loans.
#5. Celsius Network
Another company that lends you dollars for you cryptocurrencies is Celsius Network. Celsius is not only a peer to peer crypto lending company but an endeavor to bring the next $100 million people who aren’t connected to banking yet.
This way investors who have extra crypto and want to earn on those without losing the advantage of holding them can again leverage Celsius network to earn interest back in cash or coins.
At Celsius, you can expect annual rates from 5% to 12% depending upon your collateral and can get loans up to tenure of 1 year at an LTV of up to 50%.
Why Would One Want A Crypto Loan When They Have Cryptocurrencies?
This was the first question that arose in my mind when I listened about the concept of crypto loans for the first time. Of course, this should be your question too, because it is obvious that people holding crypto can simply sell their crypto to get the money they want instead of taking a loan on it.
Upon further digging, I could find out that these people who need loans despite HODLing crypto are those people who need liquidity without selling their cryptocurrencies.
They want the extra money to pay for their bills or for another investment without giving up their advantage of holding cryptocurrencies.
And the concept of crypto loans makes that possible, and that’s why you will find cryptocurrency lending platforms that I have listed above doing well in the bear market also.
So that’s all from me in this introductory guide on crypto loans and crypto lending platforms.
Hope to hear from you soon, once you have tried these platforms. Personally, I am trying Nexo and another India based lending platform. I will soon share my experience with you !!