cryptocurrency lending systems

Crypto Loans – Explanation, Background And Important Aspects

The granting and mediation of crypto-based loans, so-called Crypto Loans, is a logical step in the crypto world. This article explains the background.

When the first private-to-private lending brokerage portals emerged a few years ago, many banks saw little prospect of success. But the model increasingly caught on for borrowers and investors. The granting and mediation of crypto-based loans – so-called crypto loans – was basically a logical obvious step for the world of Bitcoin and Blockchain.

The significant fluctuations often acutely offer opportunities for which not every investor always has the necessary capital at hand. Here, loans for crypto purchases or financing in digital currencies can be a good approach. There are several variants of crypto loans. Several points that are relevant for normal credit portals also play a role in this area.

The industry is enjoying steady growth

Offers are emerging worldwide that are dedicated to the topic of crypto loans and act as lenders themselves or bring providers and recipients together. The lack of regulation in the crypto industry makes security a potential sticking point. Customers should therefore look for details on possible government licenses as well as for information on deposit insurance.

Similar to crypto exchanges, which in turn guarantee capital protection against defaults caused by the operators, there are also platforms in the crypto lending sector that guarantee deposit guarantees comparable to those of the banking industry. It is therefore worthwhile to compare carefully here. In the meantime, there are some providers that are controlled and licensed by financial supervisory authorities such as the US SEC. Customers are on the safe side here.

At the beginning is the opening of a customer account

It makes sense to compare because of the conditions. Those who do not want to sell cryptocurrencies, but lend them, find a promising investment model in crypto loans. Platforms help to find someone who is looking for coins. In many cases, repayment takes place once borrowers have cleared their debits. To participate in the systems, users must create accounts and provide proof of identity.

Then, cryptocurrencies intended for lending are transferred from an external wallet to the platform account. Now funds can be issued to borrowers. So, there are no serious differences to a normal lending between two parties. Those who do not want to sell coins prematurely can realize additional returns with Crypto Loans.

Operators sometimes advertise very high interest rates

The most important feature for the platform selection is, of course, the interest rate as well as the mentioned selection of lendable digital currencies. Between individual portals for crypto loans, there are significant deviations in both points in individual cases. So if you do not only have the big coins on the market in your portfolio and want to lend them, you might have to make do with a smaller selection of possible providers.

Other service providers allow several dozen coins as a loan basis on their portals. The terms for the repayment phase are also often flexible, with the borrowed crypto sums being repaid in one fell swoop at the end of the term in individual cases. As far as taking out a loan is concerned: In many cases, the portal operators do not provide for a comprehensive check as with classic loans from the bank. Mediation and lending thus take place directly after application within the automated loan systems.

Borrowing currencies temporarily to exploit crypto trend?

The alternative to crypto lending on intermediary portals works in a similarly unbureaucratic way. For borrowers who borrow money from portals themselves, they get access to the funds immediately after activation. Transfers to the bank account or withdrawals via special cards are standard in many cases. Specifications in the form of a minimum monthly repayment within the credit limit are often not formulated by service providers.

Important as a possible cost risk when depositing cryptocurrency as collateral for a loan: The strong fluctuations in the Bitcoin exchange rate and the prices for Altcoins can have a significant impact on the costs. Fixed loan interest rates should therefore be preferred in comparison to ensure cost stability. In this way, potential users know from the outset what total costs will be incurred by Crypto Loans at the repayment date.

Different technical orientation with provider portals

In particular, crypto fans who want to become lenders on exchanges like Binance should compare interest rates with other providers as listed on . Some portals promise returns of ten percent and more. In any case, significantly higher returns than with traditional investments are tempting. Anyone who urgently needs to “loosen up” money is well provided for with crypto-loans, thus avoiding a premature sale in bad market phases. So there are good reasons for the credit model around cryptocurrencies.

The emergence of the new industry was obvious. Banks do not accept digital currencies as loan collateral so far due to volatility. On crypto portals, which are partly centralized and partly decentralized, borrowers can often choose between a range of offers so that everyone can obtain the loan that suits them individually. Centralized providers are often characterized by more security and higher liquidity, which is especially important for the protection of customer funds.

Depending on what technology decentralized loan portals use, there is a certain amount of potentially consequential error-proneness – while this is generally present, with centralized and regulated providers, damages are ideally fully insured. Details on usable wallets should also be a focus of the comparison so you can use your digital wallet.

Interest amount can depend on the coin quantity

Finally, let’s briefly talk about interest rates and deposits with Crypto Loans again. The interest rates offered may be staggered under certain circumstances. For example, some providers pay significantly lower interest rates for Bitcoins or Altcoins above a certain limit. Some portals also set lenders clear limits for the investment.

In some places, only small amounts in the single-digit range can be granted as a loan, in other portals even triple-digit coin amounts. You should also take a look at when and how interest is credited. In some cases, this takes place at the end of the agreed term. If it is a flexible loan product that can be terminated at any time, interest distributions should be possible on a daily basis.

The bottom line is that crypto-loans are not only interesting for borrowers, but lenders in the future can also generate considerable returns by means of lending. For the future, however, lenders in particular should pay attention to the correct taxation of profits in order to avoid problems with the tax authorities.