Most people are familiar with banks, their services, and the loans they provide to their customers. Banks use fiat currencies such as dollars, euros, and rials to lend, and the borrower must repay the amount received at a certain interest rate. As cryptocurrencies become more widespread and a large financial market emerges, it is natural that loans and facilities based on digital currencies are extended to various users.
There are different platforms that allow you to obtain digital currency loans; each of these platforms has its own rules and operates according to a specific policy. If you also intend to obtain a digital currency loan or are curious about this topic for some reason, we recommend that you stay with us until the end of the article.
What is a digital currency loan?
The way digital currency loans work is similar to bank loans. With a digital currency loan, a user gives the platform a certain amount of a valid cryptocurrency as collateral and receives the required liquidity in return. Then, you repay the loan (with interest rates) according to a specific schedule and finally, when all the monthly payments are paid, you can get your collateral back.
The best digital currency lending platforms
The platforms that provide loans to their users are usually exchanges that have a high trading volume and are able to provide users with liquidity for a certain period and at a certain interest rate. Each of these platforms has taken into account different conditions for obtaining digital currency loans, which of course overlap a lot; But unlike banks, which are largely under the supervision of the central government, digital currency lending platforms enjoy greater freedom of action. Some of the best platforms for obtaining digital currency loans are:
BlockFi Platform
BlockFi is a technology company focused on financial topics. Considering that digital currencies are a big part of emerging financial technologies, it goes without saying that most of BlockFi’s activities are also in the crypto space. The BlockFi platform, which has been operational since 2017, has been able to offer its users new and optimal services all these years.
To get a loan from the BlockFi platform, one of the digital currencies Bitcoin, Litecoin or Ethereum must be paid as collateral to this platform. The interest rate that BlockFi charges on its loans starts at 4.5%; Of course, the final interest rate depends on the loan amount, the amount of collateral and the loan term.
One of the factors to consider when reviewing and taking out a loan is the LTV or loan-to-value ratio. The loan-to-value ratio actually refers to the ratio of loan-to-value to collateral. On the BlockFi platform, this ratio is typically 50%. If a user provides the exchange with 1,000 Bitcoins as collateral, they can actually receive 500 Bitcoins as a loan. Users can decide whether or not to get a BlockFi loan based on their financial conditions and the amount of liquidity they need.
Nexus Platform
The Nexo platform is another best option for getting digital currency loans. This platform was launched in 2018 and has been able to strengthen its infrastructure to the best of its ability by raising huge capital; it has lent its users over $1 billion in 2020, and this figure has quickly grown to over $5 billion.
One of the best things about the Nexo platform is that it supports over 40 cryptocurrencies as collateral. This platform supports cryptocurrencies like Bitcoin, Ethereum, Ripple, Litecoin, etc.
The interest rate that Nexo has set for its users is 6.9 to 13.9 percent. Interestingly, under certain conditions, zero-interest loans can also be granted. Moreover, the LTV of this exchange is between 50 and 90 percent. Offering such conditions has made Nexo one of the leading platforms for obtaining digital currency loans.
Celsius Network Platform
The Celsius Network platform was launched in 2018 by a group of tech entrepreneurs. One of the co-founders of this project is Alex Mashinsky, who is also the inventor of VoIP technology and has an excellent background in the technology field. The main goal of creating the Celsius Network is to bring digital currency holders to some form of productivity; so that cryptocurrency holders can deposit their assets on this platform and receive some profit in return. You can also make pledges in digital currencies and apply for a loan depending on the amount of collateral.
The Celsius Network platform accepts the most popular cryptocurrencies on the market as collateral, including Bitcoin, Ethereum, and Litecoin. The biggest advantage that this platform offers to its users is its competitive interest rate. The interest rate on Celsius Network loans starts at 1% per annum and is subject to change depending on the LTV amount and the type of loan. For example, users who own the platform’s native token (CEL) will have to pay a lower interest rate.
The digital currency lending platform Celsius Network offers three LTV levels: 25, 33, 50, and 70% LTV. The LTV rate is 25% for new users and 70% for experienced users.
Bird Platform
One of the most interesting platforms for obtaining crypto loans is Aave. The unique thing about this platform is that it offers not only the possibility of obtaining loans, but also the possibility of repaying loans to other users. If you want to earn a steady income with your cryptocurrencies, you can lend your assets to other users of the platform.
The Aave platform went live in 2017 under the name ETHLand; but after a year, it decided to continue its activities under the name Aave. The Aave platform is actually a decentralized financial protocol that seeks to eliminate intermediaries. One of the advantages that Aave offers is the provision of two different models for determining the interest rate; Users can choose either of these two options depending on the conditions they predict for the market. The first type of interest is a fixed interest rate that does not change over time. The second type of interest rate is the variable interest rate, which can increase or decrease depending on market conditions.
Another feature of Aave known for both its advantages and disadvantages is its great flexibility. This means that users can make many decisions personally. For example, the LTV variety on this exchange is very high and there are many options available to users. On the contrary, the great flexibility of Aave can lead to excessive complexity of this platform and make it an unsuitable option for beginners.
What are the advantages of digital currency loans?
It goes without saying that every financial process has its advantages and disadvantages. The main advantages of a digital currency loan are:
Quick and easy access
To get a digital currency loan, you do not have to face the usual traditional challenges and you can get good loans in a short time.
Competitive interest rates
The freedom of action that digital currency lenders have has led them to always try to reduce interest rates by offering innovative business models; these lenders are therefore now considered one of the main competitors of traditional banks.
Transparency and security
Because lenders use blockchain networks, there is good transparency and security in the management of their assets. Users can check the details and measure the quality of a platform's performance. Of course, this profession requires a high level of economic knowledge.
What are the disadvantages of a digital currency loan?
Despite all the advantages of digital currency loans, they also have disadvantages. For example, fluctuations in the price of digital currency can easily decrease or increase the value of the loan received or change the dollar value of the installments to be paid.
In addition, users still face many security challenges. Although blockchains are considered a secure platform for conducting financial processes, ignorance of how they work can put assets at risk. It often happens that passwords of inexperienced users are stolen or access to them is lost.
Summary
In this article, we try to explore the topic of digital currency loans and the most popular platforms that offer them. Digital currencies are transforming the entire financial system that governs the world and, of course, they generate many innovations not only in the field of loans and services, but also in other areas of the economy.
It should be noted that any activity in the cryptocurrency market requires passing private courses and familiarizing yourself with many topics. Uninformed activities, not only in this market but also in any other financial market, will certainly lead to bankruptcy; For this reason, it is better to always enter the market with an open and sufficiently scientific vision. In the end, I hope that this content has been useful to you and that you can also benefit from the possibilities of the various platforms.
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