Do you know Crypto Lending?

The platforms that offer cryptocurrencies and the people who use them are rising day by day! Find out everything you need to know about crypto lending : how do crypto loans work, how to take out a crypto loan, or what are the pros and cons over traditional bank loans.

What is cryptocurrency lending: Definition

Crypto-lending is one lending system based on cryptocurrencies (Bitcoin, Ethereum, XRP …), and performed on specialized platforms. In other words, it is possible to borrow altcoins there and gradually pay them back, or deposit your cryptocurrencies there to lend them out and receive interest.

This system very similar to the classic loan as we know in banks that use fiat currency. The only difference is that the transactions involve cryptocurrencies.

What is cryptocurrency used for in DeFi?

The crypto-lending is one of the most concrete applications of DeFi (Decentralized Finance). As a reminder, DeFi collects the various financial services, but performed in a decentralized way, that is, without an intermediary to manage and authorize transactions through a blockchain.

Loans, deposits and interest from cryptocurrencies are the very basis 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 verify transactions, makes the operation completely independent.

How does a crypto loan work?

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

On one side, there are borrowers with cryptocurrency and want to borrow stablecoins or fiat currency, or conversely, have stablecoins and fiat currency and want to borrow in cryptocurrencies. Then they go provide their assets as collateral and receive the assets they wish to borrow. The collateral amount must be greater than the borrowed asset.

On the other hand, there is lenders or investors who make their money, coins and tokens available to potential borrowers. The will receive interest in return 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) running on blockchain. Among the most used loan platforms, we find in particular:

also read DApps: understanding of decentralized applications in 3 minutes!

Note that lending platforms are very similar to banks in relation to the operation. This is also reflected in their leadershipas with the new director of BlockFi, who specializes in traditional institutions.

We are pleased to welcome Brian Oliver as our Director – General for Institutions. With more than 20 years of experience in launching and scaling global financial institutions, Brian will play an integral role in our continued global growth. Read more here:

Advantages and disadvantages of crypto loans

The main benefits of cryptocurrencies

  • Of attractive interest rates
  • Protection against volatility
  • Token selection to borrow (cryptocurrencies, fiat currency, stablecoin …)
  • Quick financing solution
  • No long verification procedures as in banks
  • Available for bank ban
  • Increased security

Main disadvantages of crypto lending

  • Risk of default crypto lending
  • Risk of network braking for large transactions (lack of scalability of blockchain networks)

Conclusion: Crypto loans, a viable alternative to bank loans

To conclude, the world is gradually turning to new technologies and Web 3.0. Crypto lending is a perfect illustration of switch to cryptocurrencies and blockchain. This attraction is primarily associated with easy and quick loan procedures. The latter are less restrictive than traditional banks.

The crypto-lending therefore makes it possible to easily finance a project, but also to make money on the tokens that sleep on your wallet thanks to the interest paid to the lenders. To generate passive income, lending is therefore one good alternative to investing in cryptocurrency.

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