Have you ever heard of the term- “Cryptocurrency Lending” before? If not, then don’t worry as we have got you covered. Not only will you get to understand the meaning of the term- Cryptocurrency Lending in this article, but you will also learn about the five best crypto-backed loan platforms- Celsius Network, Nexo, BlockFi, YouHodler, and CoinLoan in detail. These platforms are the mediums that can help you get started with the crypto lending process.
So what are we waiting for? Let’s begin!
What is Cryptocurrency Lending?
Cryptocurrency Lending is a process of lending digital assets via a cryptocurrency loan platform or an exchange. In this process, the borrowers can use their cryptocurrency holdings like bitcoins as security to obtain a fiat loan from the lenders on the platform at a mutually agreed interest rate. The lenders return the borrowers’ cryptocurrency holding once they have paid back the entire amount along with interest. If the borrower fails to pay back the due amount, the lender can seize the digital asset collateral.
All of this can work in reverse as well. The borrowers can use fiat as a security to obtain crypto assets from the lenders on the platform. In both cases, a lender makes his or her assets (fiat or crypto) available to loan at a specific interest rate that generates a passive income stream. The platform takes a particular cut or percentage commission from this interest income as a brokerage fee and then passes the remaining amount to the lender.
Top 5 Cryptocurrency Backed Loan Platforms
At this stage of the article, you know that a cryptocurrency lending has to be done on a platform. This platform is a medium that fulfills the job of connecting the lenders and borrowers. Even some exchanges like Binance provides the users with the cryptocurrency lending opportunity. However, so many platforms and fierce competition in the market often confuse an individual when it comes down to selecting the best cryptocurrency lending platform.
But guess what? Based on the metrics like interest rates, security, supported cryptocurrencies, geo-restrictions, and flexibility, we have shortlisted five best crypto-backed loan platforms that you can rely upon. Let’s study all of them in detail.
Celsius Network was incorporated in 2017. It is recognized as one of the leading crypto lending platforms with more than 150K active accounts and more than USD 1 billion in community assets. The Celsius Network’s core objective is to develop a new world of banking without banks by transferring the power back in the hands of the people. This platform operates in three ways:
- Lending fiat, i.e., USD to borrowers who provide their crypto assets as security.
- They are allowing the users to earn interest if they stake their crypto assets with Celsius Network.
- Lending crypto assets to financial institutions like banks who want access to the cryptocurrency markets without attracting much risk.
On this platform, users can earn interest or borrow cash. If you are a lender, you will gain 80% of the interest amount paid by the borrower to the Celsius Network. It also offers a native cryptocurrency- CEL, which has achieved impressive growth and popularity quickly.
As long as security concerns go, Celsius Network is legit and safe. The platform has established partnerships with Chainlink, Bitcoin.com, DaviPolk, Korbit, and many other known brands. The Trustpilot reviews for this platform are also impressive, and users appear to be satisfied with the top-notch services available.
Pros and Cons of Celsius Network:
- Highest-interest/Bonus rates for maximum benefit in the Industry.
- No requirement for a minimum deposit to start earning the interest.
- Zero-fee or penalty on withdrawals.
- The advantage of compound interest to further escalate the earning.
- Weekly payouts of stake.
- A wide range of cryptocurrency assets is supported.
- Extensive and robust community support.
- Weekly fluctuations in the interest rates.
- The customer support service is slow.
- Earning interest requires submission of KYC.
- The platform is restricted to many countries.
The prime reason to trust Nexo is that it is a subsidiary of a leading fintech group- Credissimo, an organization serving more than millions of members since it was first launched in 2007. However, Nexo was officially launched in 2018, which classifies it as a new player. However, it still managed to escalate quickly because the parent company (Credissimo) has been in the business of helping users lend and borrow money for more than a decade. Today it boasts a total user base of more than 800K users.
Nexo has been targeting a global audience because it supports more than 45 different kinds of fiat currencies and is available for use in more than 200 nations. Nexo is also the world’s first cryptocurrency loan platform to offer instant loans. It allows the users to provide their cryptocurrencies as security for fiat loans. However, to secure a loan, a user is first required to deposit the collateral with Nexo to be used for repayment of the loan if there is a default. The good thing is that the loan process is instant, which means that no credit check is required, no long-application forms have to be filled, and there is no need to wait for long to wait for the approval. Deposit your crypto and get your Loan in 15 mins and the best thing is you can start a loan form 10$.
The security and insurance arrangements by Nexo are remarkable. Not only does it have a military-grade security infrastructure, but the platform chose BitGo, a leader in digital assets financial as its custodian because it provides 100% cold-storage.
BitGo carries insurance protection of digital assets for Nexo users worth USD 100M. This USD 100M policy has covered the digital assets where the private keys are entirely stored by BitGo to avoid the situations of:
- Third-party hacks.
- Copying or theft of private keys.
- Insider thefts.
- Loss of keys.
You should know the incidence that took on March 12, 2020. Many Nexo accounts were liquidated on this date because of a sudden drop in BTC price. Nexo was short of time to provide extra collateral for preventing the liquidation. As a result of this BTC bloodbath, the capital of many users was liquidated. However, the users who had deposited stablecoins and fiat in Nexo and never took the loan were unaffected by this bloodbath.
Pros and Cons of Nexo:
- It offers more than 45 cryptocurrencies to borrow.
- The insurance coverage is high (USD 100 million) for the lenders.
- The cryptocurrencies available to be served as collaterals are expanding.
- The platform has military-grade security infrastructure.
- The mobile application and the website is easy to use.
- The platform provides complete flexibility as there are no lock-in periods, and the user can exercise withdrawal anytime.
- No involvement of any Capital Gain tax liability.
- The platform offers robust API support.
- Zero-fee or penalty on withdrawals.
- The loan starts from A minimum of $10 and a maximum of $2 million
- The interest rate is a little bit low.
- The Nexo holder community is not so happy with the Nexo team regarding transparency.
BlockFi is a cryptocurrency lending and borrowing platform incorporated in August 2017. It is one of the leading platforms where the users can earn interest in cryptos or take a loan against their digital assets. The three core features of this platform are as follows:
- BlockFi Interest Account (BIA): The platform allows the users to keep their idle digital assets with BlockFi in exchange for interest income every month. The interest rates depend upon the kind of digital assets that have been deposited by the users.
- Crypto Trading: BlockFi enables the users to trade the crypto pairs between LTC, BTC, ETH, and much more.
- Crypto backed loans: The users can obtain a crypto-backed cash loan against their cryptocurrencies instead of selling them away. The LTV is at 50%, which means that you can deposit your digital assets and obtain a loan of up to 50% of the total value.
As far as safety concerns go, BlockFi is safe to use because Gemini, the platform’s primary custodian, keeps 95% of the cryptos in the cold storage and the remaining 5% small portion in hot wallets. BlockFi doesn’t store the private keys of its users. You should also know that Gemini is not only a licensed custodian, but the NYDFS also regulates it. BlockFi has also received SOC2 Type 1 compliance from Deloitte.
However, despite all these things mentioned above, BlockFi had a rough time dealing with a security incident in May 2020. The hacker had attempted to steal the funds of the users, but the attack was not successful. Although BlockFi admitted that the hacker was able to access clients’ information, which is generally used by the company for retail marketing strategies. This included details such as:
- Name of the client.
- Date of Birth.
- Email Address.
- Physical Address
- Activity History.
The BlockFi stated the hacker’s nature of information could not impose any substantial risk on the clients or funds. The company took this incidence very seriously, and they even hired a new Chief Security Officer- Adam Healy, soon after the incident to re-design and improve the security protocols.
Pros and Cons of BlockFi
- The users can do seamless trading at zero cost.
- It provides monthly compounding interest.
- No penalty is charged from the users on an early withdrawal.
- The users are not required to maintain any minimum balance to earn interest.
- The platform added PAX, LTC, and USDC support in 2020 to allow users to acquire interest income in more assets.
- The platform does not need utility tokens to utilize the platform’s services.
- The platform is available for mobile and web both.
- The payouts are monthly.
- The interest rates are adjustable.
- Crypto assets options are limited in comparison to the existing competition.
- Data break incidence in May 2020.
Like other cryptocurrency lending platforms, YouHodler also provides the users an option to earn interest on their idle digital assets or obtain the loans using crypto as a security. However, it is different from the other platforms in at least one way, i.e., it enables the users to hold on to their digital assets while exercising the option to leverage them for the loans. This is a unique and impressive feature because the crypto assets’ ever-changing performance makes them challenging to ‘HODL’- especially when you require unrestricted access to your crypto assets. The platform was an instant hit within the cryptocurrency community, which helped YouHodler to expand and diversify its operations.
The two core products of this platform are- crypto loans and crypto saving account. On the other side, the two supplemental products of this platform are Turbo-charge and Multi-HODL. The turbocharge feature allows the automatic use of fiat that was lent to purchase more digital assets without any fee to utilize as the security for the subsequent loan in the chain/series. The interest amount on each loan is reduced whenever additional steps are added in the chain. Multi-HODL, on the other side, makes use of a barbell investing strategy. Multi-HODL keeps approximately 80% to 90% of the digital assets in the savings accounts where the interest is earned. The remaining 20% to 10% of the digital assets are used for taking out a series of loans, and then such money is invested into risky investments.
Pros and Cons of YouHodler:
- The platform offers high-interest rates on the savings account.
- The investment options are diverse.
- LTV is as high as 90%.
- The customer support service is reliable.
- The amount of insurance cover is low as compared to other competitors, i.e., USD 1 million.
- The platform is not available in the United States.
- The high-interest rates do not make the platform a viable option for long-term loans.
CoinLoan is a lending platform that utilizes digital assets as collateral. However, the company is based in Estonia. It serves the people worldwide and allows them to borrow money or lend their crypto assets for earning interest. The funds can be borrowed on a long-term and short-term basis both. The LTV can go as high as 70%, which is good but slightly less than the other competitors in the same arena. In terms of flexibility and functionality, CoinLoan has been recognized as the leading crypto-backed lending platform. This company’s development team is continuously working to build an intuitive, user-friendly, and reliable financial tool for the users.
Pros and Cons of CoinLoan:
- The platform hosts the support for a wide range of crypto assets.
- The customer support service is reliable.
- The company has been in the business for a long-time without any significant security flaws.
- The volume of borrowers and lenders on the platform is low.
- There is no buy-back guarantee.
- There is a need for more transparency in the operations.
There are plenty of crypto-backed loan platforms available in the market, but the ones we discussed in the article are the best ones you can find. All of them have their advantages as well as some disadvantages. The best thing about them is that anyone can sign-up on these platforms irrespective of their credit history, location, nationality, etc. You can also visit the media website to learn more about them in depth before finalizing your decision. It is also recommended to thoroughly understand and analyze the terms and conditions before involving your hard-earned money on these platforms.