Cryptocurrency and blockchain technology is evolving every day, and there are more ways to earn in crypto that replace the traditional ways of handling finance and banking. One such innovation is the introduction of crypto loans.
Most crypto platforms provide a means for users to borrow the cryptocurrency of their choice. Some platforms require collateral for the crypto loan while others do not. In this guide, we are going to take a closer look at the best crypto loan platforms to take out loans without collateral.
What are Crypto Loans?
A crypto investor with crypto holdings might need cash urgently and will have to convert his crypto assets to fiat. Sometimes, the investor has his crypto holdings staked in a smart contract and will have to unstake and lose the intended APY returns due to the urgency.
However, that is not the case since we now have crypto lending.
Crypto lending makes it possible for investors to take out crypto loans from a crypto lending platform. These loans could be in fiat or stablecoins. Although some platforms require the investors to utilize their crypto holdings as collateral, which would be released back to the investor once debt repayment is completed.
Crypto loans are a step forward in the cryptocurrency and blockchain industry as they help foster more adoption since investors no longer need to panic sell due to cash emergencies.
What is a Cryptocurrency Loan Platform?
A crypto loan platform is a third-party crypto lending platform that makes it possible for investors to take crypto loans. Crypto lending platforms play a very important role in the distribution of these crypto loans. Some crypto lending platforms generally allow users to borrow up to 50% of the value of their digital assets. However, other platforms may allow users to borrow even more.
Borrowers may repay cryptocurrency loans whenever they can before the next fixed term expires because they typically don’t have an EMI concept.
Types of Crypto Lending Platforms
Generally, there are two main types of crypto lending platforms:
- Decentralized crypto lenders:
- Centralized crypto lenders:
Both provide access to high-interest rates, sometimes as high as 20% annual percentage yield (APY), and typically demand that borrowers deposit collateral to access a crypto loan.
How Do Crypto Loans Work
In crypto lending, there are two main actors, the lender, and the borrower. The borrower puts up crypto assets as collateral to take a crypto loan from the lender.
A cryptocurrency-backed loan, like a securities-based loan, uses digital currency as collateral. It is similar to a mortgage loan in many ways. You use your crypto assets to obtain the loan and repay it over a set period.
These loans are available through a crypto lending platform or a crypto exchange. Though you retain ownership of the collateralized crypto, you lose the ability to conduct transactions with digital coins until the loan is repaid.
Crypto loans are a very effective tool for investors to quickly obtain cash, as they allow you to use your crypto holdings as collateral to secure crypto loans without selling them off.
Borrowers can use their cryptocurrency assets as collateral to obtain fiat or stablecoin loans from crypto loan platforms.
This allows you to obtain the funds without having to sell your coins, use the funds to achieve your goals, and then repay to regain control of your assets. Crypto loans enable you to generate dividends from your digital assets by lending out a portion or all of your holdings.
Crypto loans seem to be a much-preferred option due to several advantages, including
- low-interest rates, a choice of loan currencies,
- the absence of a credit check,
- quick funding, and
- the opportunity to generate passive income from cryptocurrency that would otherwise be sitting dormant.
Additionally, on several cryptocurrency platforms, investors can also lend out their digital assets and generate passive income with a high APY (more than 10%).
The borrower and the lender are the two main parties in every cryptocurrency lending transaction. Cryptocurrency assets have to be deposited by the borrower as collateral to protect the lender’s loan. The deal benefits both parties because the borrower receives an immediate loan in exchange for their crypto assets and the lenders get passive income from interest payments generated from the loan amount.
Types of Crypto Loans
#1. Collateralized crypto loans
Collateralized crypto loans are among the most popular types of crypto loans worldwide. These types of crypto loans require the borrower to first deposit crypto holdings as collateral before accessing the crypto loan.
On some platforms, the borrower is required to be overcollateralized, meaning the borrower is not allowed to borrow more than the value of collateral deposited (typically below a 90% loan-to-value). The lower the loan-to-value (LTV), the lower the interest rate, as well as the lower the risk of being margin called.
#2. Flash crypto loans
Flash crypto loans are instant loans that are borrowed and repaid in the same transaction and are typically available on cryptocurrency exchanges. These are extremely high-risk loans that are typically used to capitalize on market arbitrage opportunities, such as purchasing cryptocurrency at a lower price in one market and immediately selling it at a higher price in another, all within the same transaction.
#3. Uncollateralized crypto loans
Uncollateralized crypto loans are not as popular as collateralized crypto loans as they do not require any form of collateral for borrowers. Platforms that give out uncollateralized crypto loans usually require borrowers to complete the loan application form, pass a series of identity verification checks, and test for creditworthiness.
Uncollateralized crypto loans are a very high risk for the lenders because there is no collateral to hold onto in case the borrower defaults due to price volatility.
Best Crypto Loan Platforms
Crypto lending platforms facilitate the trade by accepting deposits of various cryptocurrencies such as Bitcoin, Ether, or Stable Coins in exchange for interest.
Bitcoin lending interest rates vary, but they are frequently very competitive, with some offering up to 12% in annual percentage yield (APY). These platforms also frequently lend assets with collateral, usually a cryptocurrency, and these are therefore known as crypto-backed loans. Below is a list of the best crypto loan platforms:
BlockFi, which was established in 2017, aspires to lead the cryptocurrency industry in customer trust. The business takes great pride in being at the top of its game by offering institutional-quality benefits at market-leading rates.
Users can earn up to 8.6% yearly interest on BTC, ETH, LTC, USDC, GUSD, and PAX through their interest accounts. Users will have the option of using their preferred fiat currency to purchase stablecoins, which they can then deposit into an interesting account to begin earning interest.
The Interest Payment Flex is one of BlockFi’s intriguing features. Users can diversify their portfolios without purchasing more crypto assets by choosing the currency of interest payments.
One well-known decentralized liquidity protocol is AAVE. It is a non-custodial protocol where you can borrow money by pledging your assets and earn interest on your cryptocurrency deposits. In addition to lending and borrowing crypto assets, AAVE is a well-developed liquidity protocol with many additional features.
As you navigate the platform, you’ll notice that users can deposit or borrow assets. To make it simple for you to compare the deposit and borrowing rates on various platforms, the interest rates are also clearly stated.
AAVE Protocol uses a variety of concepts, including Bug Bounties and Flash crypto loans. The amazing thing is that if you find a bug and notify the developers, you may even be eligible to receive up to $250,000 in USDC tokens from the developer community. So it’s worth investigating!
The cryptocurrency created by MakerDAO is called “Dai.” Anyone, at any time, anywhere, can use it. You can put up to 25+ crypto assets in your Maker vault as soon as you open one for collateral. Following the use of your cryptocurrency asset as collateral, you now have two choices. To increase your exposure, you can either borrow Dai and keep it or buy more collateral.
With Dai, the Maker community has successfully created a comprehensive ecosystem made up of numerous apps and services. For obtaining, utilizing, holding, and even accepting Dai in the ecosystem, you can find the appropriate app. In addition, there are many games on the Maker protocol, with Sandbox garnering particularly significant attention.
You are ready to go as soon as you connect your cryptocurrency wallet to Maker. You can now use the platform to deposit, borrow, or sell your cryptocurrency.
Another well-known name in the field of crypto borrowing and lending protocols is compound. You can deposit or borrow any of the numerous cryptocurrencies listed on the protocol. Additionally, Compound has its COMP token, which offers better returns while allowing you to lend your cryptocurrency to the platform for liquidity.
You can trust the protocol’s security with your assets because it is of the highest caliber. On Compound, you can easily follow the prices on the platform based on the amount of liquidity that is available. Every 24 hours, you can add to or withdraw money from your account.
In addition, Compound is developing a wide range of goods, services, and equipment for the decentralized finance (DeFi) ecosystem. With the Compound Protocol, various interfaces can even be integrated.
The largest cryptocurrency exchange in the world, Binance, processes more than 1,400,000 transactions every second. In addition to being the biggest cryptocurrency exchange, Binance has created its ecosystem. A coin called “BNB” has also been introduced by Binance.
Binance’s main goal is to boost global decentralized finance to a greater extent. Many service providers are currently constructing their blockchain applications on the Binance ecosystem.
You can do everything here, whether you want to buy, sell, exchange, or trade your crypto assets, or even get a loan or lend your crypto assets. To receive much better rewards, you can even join Binance as a liquidity provider. Additionally, Binance has created its NFT marketplace to create a venue where creators can sell their NFTs.
Binance is much more than just a platform for lending and borrowing money. Any blockchain-related task can be completed in the Binance ecosystem.
One of the most well-known CeFi lending platforms is Nexo. It offers $375 million in insurance on all custodial assets, making it a good option for more cautious investors. More than 3 million people use the platform, which has $13 billion in assets.
The LTV rates offered by Nexo are typically a bit higher than those of other CeFi loan providers. The maximum borrowing rate is currently at 13.9 percent, while the maximum annual percentage rate (APR) for lending is 17 percent.
The rapidly expanding DeFi project Abracadabra. money accepts collateral in the form of interest-bearing tokens. Borrowers receive MIM (magic internet money), a stablecoin that is pegged to the USD and backed by assets, and is traded on many exchanges as payment. With the help of this protocol, investors can “use” their bets while still earning a return.
Arbitum, Avalanche, BSC, and Fantom cross-chain support are being added to the project. Up to 90% of LTV rates are available from Abracadabra.
Additionally, users can farm SPELL, the protocol’s native token, using LP tokens.
Crypto Loans Without Collateral Platforms
The majority of DeFi applications require institutional borrowers to use cryptocurrency as collateral for their loans, which restricts the variety of use cases that are possible with crypto lending. Collateralized loans limit both the ability of lenders to earn higher returns and the flexibility with which borrowers can use their capital.
However, it is important to note that there are a few things to watch out for when attempting to borrow cryptocurrency without providing any form of security. The value of what you borrow in real-world fiat currency may end up being lower than it was when you took out the loan due to the extreme volatility of cryptocurrencies. All cryptocurrency loans are true to this.
Second, it’s entirely possible that you could end up becoming a victim of a scam. You must be cautious not to disclose information that might put you or your finances in danger, and you must ensure that the company offering the crypto loan does not have a history of misleading customers.
Third, collateral-free crypto loans can frequently have interest rates that are significantly higher than those of regular crypto loans, making them potentially very expensive in the long run.
Here are the top crypto lending platforms that do not require collateral.
Atlantis is a capital-efficient DeFi lending protocol that allows institutional borrowers to obtain competitive loan terms while lenders gain access to higher returns and more granular control over their investment portfolios.
Zero-collateral loans function similarly to revolving lines of credit in that the borrower only pays a liquidity fee on unused capital in their liquidity pool.
Once a borrower is whitelisted, the Atlantis protocol only uses specific liquidity pools for that borrower, which increases security. Borrowers can get instant loans at a reasonable rate through Atlendis’ bid order book. Borrowers have more flexibility with the Atlantis protocol because they are not required to lock in any collateral to meet their recurrent and short-term liquidity needs. The principal and interest on crypto loans are repaid at maturity.
Goldfinch is a non-collateral crypto lending platform where people, known as liquidity providers, donate their money to the system’s liquidity pools. People who provide capital are known as backers. While auditors are in charge of approving borrower borrowing, borrowers use loans with off-chain collateral.
This system makes it possible for those who want to get a crypto loan but don’t have a lot of digital assets to guarantee it to do so. Goldfinch was founded in early 2021 by Michael Sall and Blake West, former employees of Coinbase, and the protocol’s coin debuted on the open market in January 2022, making GFI one of the year’s most well-known new tokens.
It’s critical to realize that, despite having unique functionalities, crypto lending is not all that different from traditional lending. For instance, platforms for cryptocurrency lending provide the potential for total independence from banks and other centralized institutions in the lending process.
Even though crypto lending platforms are well-liked and provide attractive interest rates, it is essential to carefully consider all available options. You should review each cryptocurrency lending platform on this list, but you should also keep in mind the important aspects of such platforms.