Your Guide To Getting Crypto-Backed Loans

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Unless you’ve just landed from Mars, you’ve probably read, heard, or interacted with the term cryptocurrency. Basically, they are virtual or digital assets that you can use to purchase goods and services instead of using fiat currency. The blockchain, which is the underlying technology of these digital currencies, records and keeps track of every bitcoin transaction, making the entire process completely transparent. Over the past decade, cryptocurrencies have been on everyone’s radar, which has led to the emergence of revolutionary solutions line crypto-backed loans. 

As the name suggests, crypto loans are secured loans that are backed by cryptocurrencies. As such, the borrowers use these virtual assets as collateral for their loans, similar to how a car is used as collateral for an auto loan. 

The huge popularity of crypto loans has seen the market saturated with hundreds (possibly thousands) of borrowing and lending platforms. 

This then begs the question; How do you get a crypto-backed loan?

 

In this article, we are going to look at the different types of crypto-backed loans, how they work, and the list of the leading crypto loan sites in 2021.

Keep reading to find out about all that...

Different Categories of Crypto Loans

Basically, crypto loans fall under two main categories: Custodial crypto loans (CeFi) and Non-custodial crypto loans (DeFi).

Centralized Finance (CeFi) Loans: These types of crypto loans are exactly what they sound like. They’re centralized in nature, meaning that all the collateralized virtual assets are held by a central entity. As a result, the borrower is unable to access their collateralized assets and the lender controls the assets’ private keys.

Decentralized finance (DeFi) loans: Also known as non-custodial crypto loans, Decentralized finance loans don’t rely on a central entity to hold the virtual assets and enforce the loan terms. Instead, DeFi loans use smart contracts, meaning the loan terms are automatically executed. As such, the borrower retains control of their private keys and they automatically lose them upon defaulting.

Check out a more detailed article about the difference between the two crypto-backed loan categories at Coinlive.

How Do Crypto Loans Work?

  • As a borrower, the first step towards taking out a crypto-backed loan entails signing up on your platform of choice.
  • Next, you need to choose the desired loan amount, after which the respective platform will calculate the cryptocurrency amount you need as collateral.
  • Proceed to deposit said crypto amount and apply for the loan. 
  • Depending on the platform you choose, the loan may be approved immediately or after a few hours, upon which the amount is credited to your account. 
  • Finally, you need to start paying off the loan's balance and the interest over the designated period. Once the loan is cleared, the collateralized asses will be transferred back to your account.

3 Best Bitcoin Loan Platforms

Below is our list of the 3 leading bitcoin loan platforms in 2021;

#1: Blockfi

Blockfi is a one-stop platform that allows crypto users to buy, sell, and earn cryptocurrency. Here, lenders can earn up to 8.5% APY on various cryptocurrencies on a monthly basis. Borrowers in need of urgent cash, on the other hand, can borrow funds at 4.5% APR, which is relatively low compared to what commercial banks charge.

The best thing about this platform is that there are no minimum balance requirements or hidden charges, so you don’t have to worry about not receiving your full amount. Still, opening an account on Blockfi is a pretty simple process, as you only need to key in a few details, and you are good to go.

#2: AAVE

AAVE is yet another popular decentralized liquidity protocol, which allows crypto users to borrow funds by staking their virtual assets and earning interest on crypto deposits. Better yet, all the interest rates are also clearly stated, making it easier to compare the borrow and deposit rates on different platforms.

But perhaps what makes AAVE stand out from its competitors are the Flash Loans and Bug Bounty. If you come across any bug on the platform and report it to the developers, you could receive up to $250,000 in USDC tokens. 

#3: YouHodler

YouHodler allows you to get a crypto loan using any of the leading stablecoins with a loan-to-value ratio (LTV) of up to 90%. Along with that, the platform allows you to borrow from as low as $100, which is rare among similar companies. 

Still, you can earn interest up to 12% by simply depositing your virtual assets on YouHodler. Another interesting feature of the platform is the Multi HODL feature. This efficient tool allows you to boost the value of your favorite cryptocurrencies by placing small bets.

Final Thoughts

If you are a crypto owner in need of urgent funds, then you should consider crypto-backed loans. Along with requiring less bureaucracy, crypto loans offer lower interest loans and are secure. All you need is to stake your virtual assets and you’ll receive the much-needed liquidity within no time.



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