The development of cryptocurrency loans continues. New projects are now coming regularly. These platforms, most of which exist in the field of decentralized financing (DeFi), offer users the opportunity to obtain a loan without having to fight intermediaries and accept counterpart risk. Cryptocurrency lending helps build a new and fairer financial system based on a blockchain. This in line with asset issuance, payments, administration and insurance.
Learn all about what cryptocurrencies are right here.
The ecosystem is expanding
Firstly, the cryptocurrency world currently includes institutional lenders, stock exchange platforms and DeFi lending protocols. Loans generally fall into the categories of insufficiently secured, secured (or over-secured) and flash. Lending has never been easier.
Evidence of the power of cryptocredit is all around us. Last year, the Aave project received $25 million from large venture capital companies. Its AAVE token has since become one of DeFi’s greatest successes. It is shifting the TVL (Total Value Locked) protocol value to around $5 billion.
The ability of users to earn proceeds from lending cryptoactive assets or obtain loans in their preferred cryptocurrencies without having to deliver credit history and work through an invasive application process undoubtedly helps drive the adoption of virtual currencies. Crypto lending protocols directly link borrowers to creditors. This with flexible repayment periods, favorable interest rates and various assets accepted as collateral.
In addition, borrowers can often choose whether they prefer fiat, crypto or stablecoins. And it’s not just individuals who use lending platforms. Small, medium and large businesses can also get loans, often to finance crypto projects. Companies with a significant share of cryptocurrencies can generate revenue by freezing their wealth for a set period of time.
Distribution of cryptocurrency loans
As already mentioned, there are several types of crypto loans: insufficiently secured, secured and flash. It’s good to know the differences. Insufficiently secured crypto loans allow users to access digital assets without having to fully cover them. Such as those offered by the popular Lendefi protocol. The borrower is able to invest a higher amount than the capital he has invested in the smart contract. This provides some leverage.
On the other hand, secured loans works different. They come from the fact that clients have invested the asset in the funds they receive in return. When the loan is repaid in full, the client receives back the cryptocurrency deposited along with the increase in value. Secured loans can be backed in many ways. Not only by business assets, but also by real estate, cars, property. Basically anything of tangible value. BlockFi is one of several platforms offering loans in USD. They are covered by users’ digital assets.
As for flash loans that companies like Aave offer, these are quick and unsecure loans (flash loans). They need to be repaid quickly. Usually within one Etherea block. Cryptocurrency traders use these specialized loans. Mainly to alleviate arbitrage discrepancies in cryptocurrency prices on various decentralized exchanges (DEX). Immediate loans also works for self-liquidation. There, traders avoid triggering taxable events.
Conclusion on Crypto loans
To sum up, Crypto loans have already found their place and will continue to develop. If you needed a loan, would you reach for a crypto loan?