Cryptocurrencies (or “cryptos”) are digital currencies that investors can redeem online to buy goods and services; however, the transactions are secured with strong cryptography. Speculators try to boost the value of these unregulated currencies by trading them for profit. Throughout the year, the price of the most popular cryptocurrency, Bitcoin, has fluctuated.
The long-term holding of crypto assets is often encouraged by cryptocurrency enthusiasts. Cashing some cryptocurrency off to cover an unexpected or major expense could be a viable option if you need money.
However, your cryptocurrency may be used as collateral for a loan, depending on how much you require. Further, many crypto platforms allow consumers to lend their digital assets and receive hefty returns compared to traditional fast-growing savings accounts.
What is a Fixed-Rate Crypto Loan?
As with every other loan, Bitcoin loans allow you to borrow an amount, pay an interest rate, and repay the loan later. A cryptocurrency loan differs from others in that it uses your digital asset as collateral and secures the loan.
Bitcoin has reached over 48,000USD at the time of writing, if you weren’t aware. Taking out a Bitcoin loan from your friend is virtually impossible due to the rapidly changing value of Bitcoin. When this happens, lenders and borrowers need reassurance that each party will meet their requirements.
You may find that exploring crypto or Bitcoin lending platforms is the best solution if you’re interested in borrowing or lending crypto safely and reliably.
What’s a Crypto Lending Platform?
A Bitcoin crypto platform enables Bitcoin lenders and borrowers to make secure and efficient transactions by establishing a safe and secure environment. Decentralized and centralized Bitcoin lending platforms exist. On some platforms, you can open an account, borrow, or trade cryptocurrencies.
- Platforms such as Centralized Finance (CeFi) Crypto Lending are handled and maintained by one organization or a group. There is a central authority that controls and manages all operations and systems. User accounts on centralized platforms are often created – and security compliance procedures are implemented in order to prevent money laundering and other financial crimes. All transactions are tracked using blockchain technology on this regulated platform, which offers 24/7 customer service to all users.
- A Decentralized Financing Platform (DeFi) can lend Bitcoins without any central authority. In contrast to centralized Bitcoin lending platforms, decentralized platforms are monitored and secured through codes. Payments and transactions are often automated using smart contracts. Because it is based on the blockchain, all transactions are accessible to all users in the network, allowing for greater transparency. Borrowing Bitcoin from decentralized crypto lending platforms is as simple as filling out an application and transferring the digital currency used as collateral. You do not have to provide anything private, such as your personal details, or worry about your credit score.
Bitcoin loans, like those issued by banks and other financial institutions, have lending rates. This refers to the cost of borrowing money or assets. Usually, interest rates vary based on the loan terms, the amount, and the cryptocurrency lending platform.
If you’re planning to borrow money, make sure to check how much interest you will pay on it. Fixed and floating interest rates are offered by some bitcoin lending platforms.
The fixed interest rate is a constant or a steady rate on the liability. Your interest will be fixed throughout your payment period. This can apply to the full term or just part of it. However, a floating rate is one that is highly affected by market movement. It could increase or decrease at any time without prior notice.
Fixing interest rates is an option if you’re comfortable paying a certain amount of interest. However, it can be a bit more expensive than a floating interest rate. A floating rate, however, may be slightly lower than a fixed rate. The percentage rate can go up or down, and the highs and lows are impossible to predict.
What is Yield Farming?
DeFi assets can be utilized for yield farming without having to sell them. To do this, you have two options:
- Accessing yield farming resources using specialized tools such as yearn.finance
- Providing liquidity to one of the DEXs (Uniswap, Curve, Balancer, Sushi)
Users pay fees to DEXs — for example, Uniswap charges 0.3%, and Loopring charges 0.25% per trade. Liquidity provider fees are accumulated in the liquidity pool and augment the value of the liquidity provider shares. With pools that contain volatile assets, the risk of impermanent loss is high. On the other hand, if a stablecoin pool is used (for example, Ypool in Curve), any impermanent losses should be minimized.
What are the benefits of Yield Farming with fixed-term loans?
Borrowing against existing collateral assets, the investor obtains a fixed-rate loan. In exchange for their investment, investors receive stablecoins (USDC, DAI, and USDT). In order to invest in Curve or Yearn.finance pools, the stablecoins are deposited.
Yield Farming is redeemed by the investor, and the investor repays the fixed-term loan for the assets. Borrowers’ profits come from the difference between Yield Farming yield and interest paid.
Various Use-Cases for Crypto Loans
Single platform for crypto asset lending — Crypto loans are the most effective way and the most used aspect of crypto-lending markets.
Liquidity that isn’t taxable – For investors or hodlers holding crypto assets in their accounts, who want to avoid taxes on gains, obtaining crypto loans against collateral is the best method.
Arbitrage Trading – Crypto loans offer you the opportunity to borrow assets on one platform and lend them on another.
Trading margin – Ability to acquire leverage through obtaining a crypto loan, collateral, or other means without utilizing a centralized exchange.
Flash loans – The user can borrow crypto loans for other operations and then pay the loans back at the end of the full transaction.
SmartCredit.io platform provides fixed-interest loans, fixed-term loans, and Fixed Income Funds based on Decentralized Finance (DeFi). Join thousands of other users and sign up today.