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Cryptocurrency and Bitcoin Lending Sites

Cryptocurrency loan services are still regarded as something out of the ordinary because of the asset’s high volatility and high price. However, crypto lending is becoming more popular. In this article, we will explain the basics of cryptocurrency loans, discuss the possible risks and review the best Bitcoin lending sites.

What is cryptocurrency lending

Cryptocurrency lending is similar to traditional banking loans. It usually involves three parties: a borrower, a lender, and a platform:

So, the concept of cryptocurrency and Bitcoin lending is simple: borrowers can use their crypto assets as collateral to get a loan in fiat or stablecoins, and lenders provide their coins at an agreed upon interest rate.

Sometimes, a platform gives a loan itself. In this case, borrowers take money from the platform using their cryptocurrency as collateral. They can configure the interest rate, duration of the loan, and other parameters like in any traditional credit process.

Types of crypto lending platforms:

Decentralized – a user deposits collateral on a smart-contract to get a Bitcoin loan online.

P2P platform – users provide loans to other users. This kind of service acts as a middleman between borrowers and lenders. It keeps the collateral and resolves possible disputes between the customers.

Centralized – these kind of platforms grant loans via other users’ deposits. Centralized lending services provide a loan instantly as soon as they get collateral.

How cryptocurrency lending works

Collateral loans are provided by special platforms and other users (in the case of P2P crypto lending). The services give out credit in fiat money, stablecoins, and cryptocurrencies. Loan granting goes as follows:

  1. A user deposits collateral and requests a loan.
  2. The platform pre-authorizes the collateral and gives out a loan.
  3. When the borrower pays off their loan, the platform returns the money.
  4. Otherwise, the platform sells a part of this collateral, and the remaining amount is returned to the lender.

Platforms don’t check your credit history, so those who were not approved for a banking loan can easily get money in digital currencies. However, everybody has to undergo KYC according to Anti-Money-Laundering Policies.

Usually, platforms require the same set of documents: an ID card or driving license, income certificate and proof of residence. Sometimes to increase your chance of obtaining a credit, you can upload a video message, links to your social media pages, etc. Each platform has a section with a full list of required documents.

Pros and cons of cryptocurrency lending

Cryptocurrency lending has several advantages over the traditional credit system:

However, due to high market volatility and lack of regulations in the cryptocurrency sector, the inherent risks of crypto lending are high for lenders and borrowers.

A lot of services create rating systems in order to identify reliable borrowers. But sometimes people pay off a few small debts to get a high rating, open up a new credite and disappear with all the money.

How to choose a crypto lending platform

Interest Rate

The interest rate is probably the most important condition to consider when choosing a crypto and Bitcoin lending platform. Is it balanced well both for borrowers and lenders? The rate should be low enough for borrowers and high enough for lenders to earn money on it.

You have to be disciplined and approach everything realistically here; a 20% Annual Percentage Rate for lenders and 2% Bitcoin loan is impossible, so if you’re looking at one, you’re facing a scam website.

Security

One more critical aspect is platform security. It won’t matter how much interest you can earn on crypto if everything is stolen by hackers. Before using a cryptocurrency lending site, check the security features of the service and whether the platform has suffered from hacker attacks.

Supported currencies

Check how many fiat and digital currencies a platform offers its users. Some services are limited in choice and may offer only a few coins while the others have dozens. The more options you have, the broader your opportunities to earn on interest.

Flexible conditions

Each platform has its limits on deposits, withdrawals and various terms for loan granting.

Flexible loan conditions allow borrowers to configure their loans in preferable ways. They can set the desired amount, interest rate, duration, repayment method, etc.

Lenders should take into account withdrawal limits and possible fees. Each currency has different deposit and withdrawal limits. Payment frequency will show lenders how often they will receive interest on loans – it can be every day, week, month, etc. Make sure to thoroughly inspect the conditions a service is offering in order to choose the platform most suitable for you.

Geographical restrictions

Cryptocurrency lending platforms are financial services that need to comply with KYC and AML regulations. As a result, some platforms are unavailable in certain countries. When choosing a lending service, make sure that it operates in your region.

Top 5 cryptocurrency lending services

BlockFi

BlockFi is a crypto lending platform located in New York, which was founded in 2017. The company has managed to raise over $20 mln. from various industrial ventures, including Valar, Galaxy Digital, Susquehanna.

Features:

Nexo

The first cryptocurrency service in the world that provides instant loans. The service doesn’t have hidden fees and minimum repayments; loans are available instantly with no credit checks. It has over 800,000 users and is available in 200+ countries.

Features:

CoinLoan

One of the first P2P crypto lending platforms for crypto-collateralized loans based in Estonia. A popular European service with a simple lending process and high-grade security supporting multiple cryptocurrencies.

Features:

YouHodler

YouHodler is a new player on the market headquartered in Switzerland. In a few years, it has managed to evolve into a crypto-financial ecosystem. You can earn up to 12% interest rate or borrow digital coins with an LTV of up to 90%.

Features:

Celsius Network

The Celsius Network, founded in 2017, is one of the most popular crypto lending options available today. It has 40,000+ active users and has processed over $4 billion in loan originations.

Features:

To wrap things up

Though Bitcoin and cryptocurrency loans are not regulated, they can serve as an excellent alternative to traditional lending schemes. Cryptocurrency loans lack credit checks and are granted almost instantly. They let you become a lender and make passive income on cryptocurrency interest every month. Additionally, cryptocurrency lending services can pay you 10% interest on your deposit in stablecoins backed by USD, while banks usually offer around 2% or less.