Do you know Crypto Lending?

The platforms that offer crypto lending and the people who use them are expanding day by day! Find out everything you need to know about the crypto loan : how crypto loans work, how to take out a crypto loan, or what are the advantages and disadvantages compared to traditional bank loans.

What is Crypto Lending: Definition

Crypto lending is a lending system based on crypto-currencies (Bitcoin, Ethereum, XRP…) and which is done on specialized platforms. In other words, it is possible to borrow altcoins and pay them back quickly, or deposit your cryptos in them to lend them and receive interest.

This system looks a lot like the classic loan that we know in banks, using fiat money. The only difference is that the transactions involve cryptocurrencies.

What is the use of crypto lending in DeFi?

The crypto loan is one of the most concrete applications of DeFi (Decentralized Finance). As a reminder, DeFi brings together the various financial services, but carried out in a decentralized way, that is to say without an intermediary to manage and authorize transactions through a blockchain.

Borrowing, deposits, and interest rates from crypto lending represent the same foundation of DeFi. Decentralized platforms serve as a means of contact between lenders and borrowers, and smart contracts (programs that run automatically when specific conditions are met) validate and complete transactions, carrying out fully autonomous operations.

How does the crypto loan work?

As we mentioned above, the operation is quite similar to the classic loan system.

On the one hand, there are borrowers with cryptocurrencies and wishing to borrow stablecoins or fiat currency, or vice versa, having stablecoins and fiat currency and wishing to borrow in cryptocurrencies. They then go place their assets as collateral and receive the assets they wish to adopt. The amount of collateral must be greater than that of the borrowed asset.

On the other hand, there is lenders or investors who make their money, coins and tokens available to potential borrowers. They improve interests in exchange for this provision.

What are the crypto lending platforms?

There are many crypto lending platforms available in the market. They are true decentralized applications (dApps) which runs on the blockchain. Among the most used lending platforms, we find in particular:

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Note that lending platforms are very similar to banks in terms of operation. This is also reflected in their managementas with the new director of BlockFi, who is a specialist in traditional institutions.

We are delighted to welcome Brian Oliver as General Manager of Facilities. With over 20 years of experience launching and scaling global financial institutions, Brian will play a vital role in our continued global growth. Learn more here:

Advantages and Disadvantages of Crypto Loans

The main advantages of crypto lending

  • Of the attractive interest rate
  • Protection against the will
  • Choice of token to borrow (cryptos, fiat currency, stablecoin…)
  • Quick financing solution
  • No long verification procedures like in banks
  • Accessible to bank bans
  • Increased security

Main Disadvantages of Crypto Lending

  • Risk of platform default crypto loan
  • Risk of network slowdown for large transactions (lack of scalability of blockchain networks)

Conclusion: crypto lending, a viable alternative to bank loans

To conclude, the world is gradually turning towards new technologies and Web 3.0. Crypto lending is a perfect illustration of switch to cryptocurrencies and blockchain. This attraction is above all linked to the ease and speed of borrowing procedures. The latter being the least restrictive than those of traditional banks.

The crypto loan therefore makes it possible to easily finance a project, but also to make profitable the tokens which sleep on your wallet thanks to the interest rates reversed to the lenders. To generate passive income, the loan is therefore a great alternative to cryptocurrency staking.

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