The development of cryptocurrency loans continues and new and new projects come 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 counterparty risk. In line with asset issuance, payments, administration and insurance, cryptocurrency lending helps build a new and fairer financial system based on a blockchain.
The ecosystem is expanding
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. Late last year, the Aave project received $ 25 million from large venture capital companies, and its AAVE token has since become one of DeFi’s greatest successes, 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, 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), while 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, such as those offered by the popular Lendefi protocol, allow users to access digital assets without having to fully cover them. The borrower is able to invest a higher amount than the capital he has invested in the smart contract, which provides some leverage.
Secured loans, on the other hand, 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 not only by business assets, but also by real estate, cars, property – anything of tangible value. BlockFi is one of several platforms offering loans in USD, which are covered by users’ digital assets.
As for flash loans offered by companies like Aave, these are quick and unsecured loans (flash loans) that need to be repaid quickly – usually within one Etherea block. These specialized loans are used by cryptocurrency traders to alleviate arbitrage discrepancies in cryptocurrency prices on various decentralized exchanges (DEX). Immediate loans can also be used for self-liquidation, where traders avoid triggering taxable events.
Conclusion on Crypto loans
Crypto loans have already found their place and will continue to develop. If you needed a loan, would you reach for a crypto loan?