DISCLAIMER: Please be advised that this article is not intended as investment, tax, financial or legal advice. Interested readers should seek out professional advice for their particular situation.
While trading cryptocurrencies is now pretty mainstream, it is not the only way to earn a profit. The crypto market offers several other investment tools, and digital currency lending is on the rise. It allows borrowers and lenders to transact money with good interest rates, low fees, and a sufficient level of safety.
As the popularity of crypto lending has increased, traditional financial instruments have begun to make their way into this emerging market. Crypto users can now make use of margin lending, crypto-to-fiat lending, and crypto-to-crypto lending for a multitude of purposes. In this article we cover how crypto lending works, and the three best crypto lending platforms that are currently on the market.
The process of crypto lending is pretty straightforward on most platforms that offer it as a service. Lenders deposit part of their crypto holdings onto the platform, and the coins are then made available to borrowers at a pre-established interest rate. Borrowers can then take out a loan for an agreed upon period of time. Once the lending time has ended, the borrower must return the funds and pay the interest rate.
In order to help mitigate risks (such as borrowers being unable to pay back their loans) and increase trustworthiness, most crypto lending platforms have guarantees, or set up collateral or loan backing systems. Some platforms hold onto a borrower’s cryptocurrency as collateral for their loan, meaning that you don’t lose your crypto unless you default on your payments.
There are two primary reasons why borrowers make use of crypto lending: to cover day-to-day expenses or for margin trading. Day-to-day expenses are self-explanatory; they cover the basic costs of living or business expenses. Margin trading means that the borrowed funds are used to make riskier and higher value trades. If a proper trading decision is made, the trader receives a higher profit, but in the case of a bad deal, the trader will have to pay back the losses out of their own pocket.
Unlike a traditional bank loan, crypto lending is mostly peer-to-peer (P2P). This means that users are borrowing directly from each other instead of a financial institution or the lending platform itself. Crypto lending platforms set the interest rates, lending times, and any other terms in addition to enabling the transactions. Some platforms simplify the process further and supply the loan amount from their own stored funds so that borrowers don’t have to find a lender.
Crypto lending has several advantages compared to traditional lending, which are the following:
Naturally, there are risks associated with crypto lending and these include:
As you can see, crypto lending offers a number of benefits, but there are risks too. It’s important that you do your due diligence and have a good understanding of the cryptocurrency market.
The popularity of crypto lending has been steadily rising. As such, there are lots of options available for those interested in using their crypto for loans. Naturally, different loan platforms offer different benefits. Some have the lowest interest rates, others are focused on safety and security. The three following crypto lending platforms are the ones we think are the best on the market.
Based in Estonia, CoinLoan is a P2P lending platform for crypto-collateralized loans. Since launching in 2018, it has become one of the most popular European crypto lending platforms. With a simple lending process backed by bank-grade security, it’s easy to see why. Additionally, CoinLoan offers one of the largest choices of cryptocurrencies, fiat, and stablecoins.
CoinLoan’s lending process is simple. Borrowers deposit a specific amount of cryptocurrency as their collateral for the loan. Additionally, the platform is incredibly transparent. Prior to borrowing, potential debtors are presented with the exact numbers for the lending contract. CoinLoan offers borrowers the added benefit of being able to preserve their crypto assets with flexible lending conditions, no credit checks, and convenient withdrawal methods.
As for lenders, CoinLoan offers several guarantees. The platform is registered and licensed in the European Union and is, therefore, subject to EU financial law which offers unparalleled protections for consumers. Repayments are guaranteed, and all transactions are SSL-encrypted. In fact, since opening in July 2018, every lender has received their repayments in full and on time.
Here at SelfKey, we certainly see the amazing potential CoinLoan has to disrupt the loans industry, which is why we entered a comprehensive partnership with them this year.
With offices in Cyprus and Switzerland, YouHodler is a fintech platform focused on crypto-backed lending with fiat, crypto, and stablecoin loans. However, the platform offers so much more than just crypto loans. The Turbocharge service allows users to borrow additional crypto and use it as collateral for other loans. Multi HODL allows users to boost their savings by making small, speculative investments with crypto. YouHodler also offers a cryptocurrency wallet app available for iOS and Android smartphones.
The lending features on YouHodler are pretty similar to most of its market competitors. However, it does have the advantage of a high and flexible Loan-to-Value (LTV) rate, which is available at 90%, 70%, and 50%. As a result, users can obtain a higher credit line for a lower deposit. Loan management solutions are also available, including the option to increase the LTV, borrow additional crypto, and more.
Another major advantage is that YouHodler offers its users access to instant cash, which is provided by the platform’s fiat-base funds. Unlike P2P crypto lending platforms, there is no need to find a creditor. Additionally, the platform prides itself in transparency, meaning there are no hidden fees.
The platform takes a different approach from most crypto platforms; YouHodler works with the banks instead of avoiding them. This allows YouHodler to partner with trusted fiat payment providers and hold its fiat funds in the most reputable banks in Europe to ensure their safety.
One of the few platforms registered in the United States, SALT Lending was one of the first crypto lending platforms to hit the market back in 2016. It has a great reputation, and one that it has certainly earned. SALT Lending offers P2P crypto-backed loans. Similar to the other platforms we’ve listed, the platform allows users to use crypto as collateral for their loan.
The process for getting a loan is very straightforward. Users can be verified the same day, and don’t need to undergo a credit check. The terms of a loan are completely customizable, from LTV to loan length. SALT Lending also operates in over thirty jurisdictions (including 46 US states), which is one of the most comprehensive when it comes to availability.
When it comes to security, SALT Lending is top level. All loans are backed by assets that have been insured and all crypto assets are held in cold wallets. Additionally, all digital assets are covered by insurance in the event of theft or fraud. These protections should be industry standard, and SALT Lending sets the bar high for competitors when it comes to security.
Currently, there is no aggregated list of crypto loan platforms. If you are interested in crypto lending, you have to do a lot of research yourself. However, the future is about to change. Here at SelfKey, we offer a number of different marketplaces to users of our SelfKey Wallet. We have marketplaces for incorporations, bank accounts, and cryptocurrency exchanges, with more on the way.
Our next release is the SelfKey Cryptocurrency Loans Marketplace where SelfKey Wallet users can get access to the world’s most exciting lending platforms and use cryptocurrencies as collateral to withdraw fiat loans. This is an exciting prospect for the SelfKey community and adds impressive new functionality to the Wallet. We already have some great platforms on board, such as CoinLoan, and more will be joining.
If you want to start exploring the SelfKey Wallet now, download it here and keep an eye out for the launch of the SelfKey Cryptocurrency Loans Marketplace.