In the past few years, the crypto world has seen a massive surge in adoption and tech innovation. Despite the regulatory pressure in different countries, more and more platforms offer low-interest rates. Arguably, one of the best things about it is the abundance of other blockchains and various lending solutions.
Undoubtedly, there are many benefits to reap — from quick turnaround times to excellent rates and terms. Whether you’re looking to lend or borrow, decentralized protocols offer lots of utility. Best of all, most reputable platforms provide a smooth and seamless experience.
As a result, the service is slowly becoming more regular. Of course, we can’t help but mention some of the customers’ problems. Luckily, they all have solutions that can prevent bad experiences right from the start. Here are some of the most crucial issues before crypto lending and their “quick fix”:
Arguably, the first and core issue with crypto lending is that you’re dealing with unstable commodities. If you’re a firm believer in your investment, chances are you won’t bother HODLing tight to your crypto assets. Just keep your cryptocurrency in a hardware wallet, safe and away from hackers.
Still, you won’t be able to utilize your holdings. Also, you can’t consider your coins as a reliable valuation model as property ownership. In turn, this feature can significantly impact the value of your loan collateral. Such cases can bring lots of headaches to both sides, especially when the borrower goes into default.
You can quickly make your assets work for you, thanks to crypto lending. Just deposit your tokens and start earning interest. Typically, smart contracts involve special security measures that ensure borrowers back their loans with collateral.
Similarly, you can set up your holdings as collateral and take a loan. Perhaps, the best thing about crypto lending is that you’ll get much lower interest rates than traditional banks. What’s more, smart contracts don’t care about your bad credit history or insufficient purchasing history.
Of course, let’s not forget about crypto lending sites that allow using blockchain assets to take fiat loans. A prime example here is the famous Bitcoin maxi, Brock Pierce. In 2019, he bought a $1.2 million home in Amsterdam by putting his BTC as collateral. Ultimately, he retained his coins’ value while receiving the fiat for his house.
As you can imagine, crypto lending isn’t something to go into blindly. In this regard, you should always consider all the risks. In most cases, the dangers have to do with defaults. Since these platforms don’t take bad credit history into account, such loans pose a high risk of default. After all, even centralized lending marketplaces won’t go further than leading you through a KYC procedure.
Luckily, there’s a quick solution to the risk of losing your assets. Usually, borrowers put up BTC, ETH, or other cryptocurrencies as collateral. In some cases, they even have to provide more than the actual value of the borrowed funds. That way, lenders will keep at least 80% of the provided assets in case of default.
Remember that crypto lending is for people who are usually bullish about a particular asset’s price. Therefore, you must understand that the market is volatile. In such cases, you must carefully consider your options. Also, you should always read the fine print whenever using a platform.
If there’s one thing that keeps large investors off the blockchain is the risk of hacking and exploits. So far, the crypto landscape is yet to prove to be a safer place to borrow and loan your assets. In most cases, people already own coins, but they prefer to hold them in their hardware wallets.
Typically, serious investors abstain from utilizing their investments because of the overall lack of confidence in lending platforms. Moreover, decentralized protocols have shown numerous exploits and money faucets throughout the years.
In most cases, losing your funds due to fraud or hacks will possibly result in permanent loss. As a result, the mixed user experience has greatly limited the influx of fresh funds into lending platforms.
Undoubtedly, the crypto lending niche advancements have outpaced the overall works in blockchain technology. As of now, smart contracts are the norm, especially for dedicated networks like Cardano. In turn, users can benefit from a high level of security combined with handy pooled mechanisms.
Moreover, platforms like AAVE (Ethereum) and Aada Finance (Cardano) are implementing a Safety Module. It reserves up to 30% of the staked native tokens as insurance against hacks, exploits, power outages, and more.
Still, beginners can rely on centralized websites like BlockFi and Celsius Network. Usually, such platforms use custodians with a positive reputation in the industry. Like always, make sure you read the fine print and educate yourself on their insurance policy.
Undoubtedly, the most considerable debate here has to be whether crypto lending is better than traditional lending. Indeed, you can’t compare digital currencies to holding printed money in your hands. Still, it’s hard to deny that digital assets and lending services have already outperformed their predecessors. Here are some of the unique benefits of crypto lending:
Thanks to the high adoption, crypto borrowing has become quite affordable. In most cases, you’ll get much lower rates than traditional banks. What’s more, many of the protocols have set up high collateral requirements. In turn, you can safely take crypto loans for big purchases like electronics, cars, and more.
As already noted, one of the most significant benefits of crypto loans is that you won’t need to prove your credit history. Indeed, you’ll no longer have to spend years building up a positive credit score for a simple loan. Simply put up collateral, and you’re ready to go! In this regard, it’s safe to say that crypto lending is much more democratic than traditional one.
Perhaps, this one is a no-brainer for everyone. When you apply for a traditional loan, you often have to wait for a certain period. In crypto, you can do everything in the nick of time. Since you don’t need to sign agreements and go through piles of documents, everything is easy and fast.
Surprisingly, many beginners and fiat users believe lending out crypto is risky. On the contrary, using this service can make you rich in a short period, especially if you know what you’re doing.
Sometimes, you can even multiply your funds several times — a lot more than a traditional savings account! Moreover, the best thing is that you don’t have to do anything — simply lend out your crypto and let it do its job.
Last but not least, let’s not forget about the perks of decentralized finance (DeFi). Since its emergence on the scene, many people have benefitted from the opportunity of trustless loans. Best of all, there are no middlemen involved. In other words, coding language has promptly replaced people in managing loans.
Arguably, smart contracts have massively reduced the waiting time and fees and automated all payouts. Ultimately, decentralization has remained transparent while removing verification rules like KYC (know your customer). Of course, you can always choose to go to a centralized platform and use the same service.
Whether you’re an ordinary retailer or a businessman in need, crypto lending gives a new definition of modern finance. Indeed, your funds can never be 100% loss-proof. Still, the rapid advancements in the field have proven crypto to be entirely worth it.
In the past few years, plenty of new blockchains emerged on the scene. In turn, the delivery of faster and more secure financing solutions effectively increased the trust among users. Perhaps, it won’t be a surprise if crypto lending becomes the new normal and replaces traditional banking.