Table of Contents
How do crypto loans work?
Is crypto lending safe?
What are the upsides to Bitcoin lending?
Downsides to crypto lending
Four popular crypto lending platforms
The bottom line
Jun 21, 2022
6 min read
Crypto lending is an alternative way of loaning money where investors can either be the lender or use crypto as collateral for a loan.
Crypto lending allows you to take out a loan using cryptocurrency as your collateral assets. You could also be on the other side of the loan and be the lender to earn returns from the interest on the loan.
Crypto lending can be done through a decentralized finance (DeFi) platform, which connects lenders to borrowers and vice versa. DeFi platforms facilitate peer-to-peer lending (also called p2p crypto lending) and have no middle person. Alternatively, you can borrow through a centralized platform like Binance, BlockFi, and Nexo.
Crypto traders who have a large sum of currency and don’t plan to sell any of their assets can grow their returns by loaning money. Cryptocurrency lending is ideal for people who want to hold their assets, sometimes referred to as "hold on for dear life" (HODL).
If you own cryptocurrency, let’s say Bitcoin (BTC), that you don’t want to sell, but you also believe it's unwise in the short term to continue holding it, you can use it as collateral for a loan. Typically, if you use Bitcoin or another fiat currency as collateral for a loan, you receive the loan in a stable coin currency or U.S. dollars. For example, a Stablecoin currency is pegged to an external value, like the U.S. dollar. This way, you are still receiving your loan in a digital currency, but it is less volatile than the fiat currency you use as collateral. The particular DeFi crypto lending platform will determine what your options are in terms of receiving the loan. You retain the ownership of the crypto you used for collateral, but you cannot use it for transactions. Once you pay back the loan, you regain the ability to trade and execute transactions.
When you borrow or loan through centralized platforms, you must meet specific regulations and requirements. Centralized platforms use these regulations to ensure your digital assets are protected. Your transactions are publicly recorded using blockchain technology.
When using DeFi lending, the platform utilizes smart contracts to facilitate lending and protect your assets. The smart contacts are open to public view; you deal directly with the lender or borrower. Because you deal directly with another crypto trader, there are no requirements you need to meet, unlike with a centralized platform.
Major investors back crypto lending platforms like BlockFi, but your crypto assets are not insured, so you do take on potential risks with a lack of insurance.
Crypto lending started for a reason: Many people felt bank loans' interest rates or their accessibility was undesirable.
Unlike a traditional financial institution loan, a crypto lending platform requires no credit check. This can be helpful with people with a poor credit score or no credit who still want to obtain a loan.
Crypto interest rates tend to be relatively low compared to personal loans or credit cards. If you want to avoid extremely high fees for a loan that may be difficult to qualify for at a bank, crypto loans offer an alternative.
Once you're approved for a crypto loan, you should receive funds in a short amount of time, usually a few hours. This is one of the major reasons many believe crypto loans to be more efficient than traditional bank loans.
You can obtain a loan with a variety of digital assets as your collateral, for example, Bitcoin or Ethereum (ETH), and you can receive your loan in several ways (primarily either in Stablecoins or USD).
Your loan is based on how much your crypto assets are worth, and with crypto lending, you can often receive a loan that's more than half your portfolio value.
While crypto lending may have advantages compared to traditional bank loans, you also assume other risks and other downsides.
Your crypto holdings are not insured with crypto lending, even on centralized crypto exchanges. Compared to a traditional savings or bank account, your money is insured in the rare chance your bank fails. Crypto lending, however, doesn't offer this safety net. If you are the lender and the loan falls through, you could potentially lose everything in the loan.
A significant risk with cryptocurrency is its volatility. If your assets depreciate in value past the loan-to-value ratio (LTV), your lender could issue a margin call. If a margin call happens, you would have to put up more collateral to keep your loan.
If you want to withdraw your crypto from an interest account, it may take a while for you to access your account. This can be risky with crypto’s volatile nature because you could miss an opportunity to sell your crypto before a crash.
If you use your crypto as collateral, you'll be unable to access the currency (even though you still own it) until you pay off your loan.
Your repayment schedule may vary from others, so you should check your loan terms to be sure you can make payments on time.
In comparison to each other, crypto lending platforms have many important differences to understand when considering which is the best for you.
Aave is a decentralized platform, but it allows you to access flash loans or fixed-rate loans. Aave also accepts many different currencies as collateral.
BlockFi is one of the leading centralized platforms and, as mentioned earlier, is backed by established financial institutions in the United States.
Oasis Borrow supports DAI Stablecoins, but the most intriguing feature of this platform is the ability to put your own crypto as collateral to mint DAI Stablecoins. You can either pay back your loan by minting a set number of DAI or by repaying the loan traditionally.
Nexo is a centralized platform and is popular because it offers the rare feature of insurance. Nexo also accepts many currencies.
Crypto lending offers an alternative to traditional loans that allows both borrowing and lending. With crypto lending, you have many different platforms to choose from, each with its own advantages and disadvantages to best meet your goals and risk tolerance. Crypto lending is also a way to capitalize on your assets without selling them, especially if you are in the crypto market for the long haul.
Ready to take the next step in your crypto journey? Invest in Crypto, our actively managed crypto portfolio. We perform deep fundamental research and due diligence to ensure that your capital is invested in what we consider high-impact, high-utility cryptos with the potential for massive growth. Sign-up takes minutes.
At Titan, we are value investors: we aim to manage our portfolios with a steady focus on fundamentals and an eye on massive long-term growth potential. Investing with Titan is easy, transparent, and effective.
Get started today.
Certain information contained in here has been obtained from third-party sources. While taken from sources believed to be reliable, Titan has not independently verified such information and makes no representations about the accuracy of the information or its appropriateness for a given situation. In addition, this content may include third-party advertisements; Titan has not reviewed such advertisements and does not endorse any advertising content contained therein.
This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any strategy managed by Titan. Any investments referred to, or described are not representative of all investments in strategies managed by Titan, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results.
Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see Titan’s Legal Page for additional important information.
You might also like
Understanding the Different Types of Cryptocurrency
How many cryptocurrencies are there? Answers vary but in short: a lot. As many as 70,000, by one estimate.
What Is Digital Currency? Types, Advantages, and Examples
Digital money isn’t necessarily new. Today, thanks to the rise of digital payments and cryptos, individuals may be more likely to buy and spend virtual currencies.
What Is a Crypto Token and How is it Different From a Coin?
Developers can launch a crypto token to build on top of an existing blockchain’s features and popularity. Learn how they also can focus on creating, promoting, and updating it.
Can You Short Crypto?
There are many ways for investors to bet against Bitcoin and Ether and sell them short. Learn how these often involve derivatives such as futures contracts.
© Copyright 2023 Titan Global Capital Management USA LLC. All Rights Reserved.
Please refer to Titan's Program Brochure for important additional information. Certain investments are not suitable for all investors. Before investing, you should consider your investment objectives and any fees charged by Titan. The rate of return on investments can vary widely over time, especially for long term investments. Investment losses are possible, including the potential loss of all amounts invested, including principal. Brokerage services are provided to Titan Clients by Titan Global Technologies LLC and Apex Clearing Corporation, both registered broker-dealers and members of FINRA/SIPC. For more information, visit our disclosures page. You may check the background of these firms by visiting FINRA's BrokerCheck.
Various Registered Investment Company products (“Third Party Funds”) offered by third party fund families and investment companies are made available on the platform. Some of these Third Party Funds are offered through Titan Global Technologies LLC. Other Third Party Funds are offered to advisory clients by Titan. Before investing in such Third Party Funds you should consult the specific supplemental information available for each product. Please refer to Titan's Program Brochure for important additional information. Certain Third Party Funds that are available on Titan’s platform are interval funds. Investments in interval funds are highly speculative and subject to a lack of liquidity that is generally available in other types of investments. Actual investment return and principal value is likely to fluctuate and may depreciate in value when redeemed. Liquidity and distributions are not guaranteed, and are subject to availability at the discretion of the Third Party Fund.
The cash sweep program is made available in coordination with Apex Clearing Corporation through Titan Global Technologies LLC. Please visit www.titan.com/legal for applicable terms and conditions and important disclosures.
Cryptocurrency advisory services are provided by Titan. Cryptocurrency trading is provided by Bakkt Crypto Solutions LLC ("Bakkt Crypto"). Bakkt Crypto is not a registered broker-dealer or a member of SIPC or FINRA. Cryptocurrencies are not securities and are not FDIC or SIPC insured. Bakkt Crypto is licensed to engage in virtual currency business activity by the New York State Department of Financial Services. Cryptocurrency execution services are provided by Bakkt Crypto (NMLS ID 1828849) through a software licensing agreement between Bakkt Crypto and Titan. Please ensure that you fully understand the risks involved before trading: bakkt.com/disclosures.
Information provided by Titan Support is for informational and general educational purposes only and is not investment or financial advice.
Contact Titan at email@example.com. 508 LaGuardia Place NY, NY 10012.