Kelley is your go-to for all things NFT!
Kelley is your go-to for all things NFT!
Crypto margin lending is a relatively new concept, with the first platform being launched in 2017 as a Bitcoin margin lending project. Many others have sprung up since, but how do you decide which is the best one for you?
In our guide we will run through the different types of online margin lending available, explore the types of coin you can lend or borrow and give you some pointers on what to look for in a good platform.
Crypto lending, explained in simple terms, provides a readily-available way to make money from your crypto holding without having to sell. In principle, you simply deposit your crypto on a lending platform and receive interest on the loan.
This system also benefits those who wish to increase their trading potential, as they can gain access to crypto assets and borrow coins at low interest rates. However, there are two different types of platforms, which we’ll explain next.
A CeFi platform is custodial, meaning that you effectively hand over ownership of your cryptocurrency and the private key to your crypto wallet to the centralised exchange, which thereafter manages all transactions and offsets crypto lending risk with strict security measures. Effectively, this works in much the same way as any major fiat currency institution.
As the name suggests, DeFi platforms are the complete opposite of the CeFi type and offer you access to decentralised crypto lending. As there is no single authority (middleman) involved, you remain completely in control of your crypto and how it is used.
As DEFi projects become more popular, they are inevitably more prone to being targeted by opportunist hackers, so it’s important to ensure that any DeFi platform you engage with has suitable security protocols in place.
Hardcore crypto enthusiasts would naturally argue that CeFi fully negates the core principle of using cryptocurrency, which is anonymity. To a point this is true, as a CeFi platform can reveal details of an individual’s wallet for purposes of verification.
However, CeFi is generally considered a more secure way to engage with cryptocurrency lending, so there are two separate factors to weigh against each other.
You can read more about reliable CeFi platforms in our review section, where we ask searching questions like “Is BlockFi legit?” And give you honest answers. Exploring reviews will give you a much better idea of what you can expect from an online margin lending site.
Unsurprisingly, Bitcoin margin lending and Ethereum margin lending are the most common options. However, some crypto margin lending platforms offer contracts for more than 200 different cryptocurrencies. So, if you want to lend or borrow lesser-known coins or tokens, then finding the right platform will pay dividends.
When comparing platforms, it’s evident that crypto lending interest rates are infinitely variable, especially where DeFi projects are concerned.
Most platforms have their own crypto lending interest calculator, which is a valuable tool that enables you to accurately calculate the amount of interest you will earn as a lender, or the amount you can expect to pay if you borrow cryptocurrency. You can also find some standalone calculators online, which are sometimes the better option.
There are three main types of crypto loans: flash, instant and long-term, which are all suited to different circumstances.
Flash loans enable you to borrow cryptocurrency with zero collateral. As the name suggests, they are very short-lived contracts, which are completed within a single block. A block being one unique part of the blockchain as a whole.
There are four parts to the transaction and if any of them fail, the entire transaction is void:
Access crypto funds using a unique contract and transfer them to a wallet purchase crypto from a liquidity poolSell the crypto to another liquidity pool for a higher priceRepay the initial loan, plus the borrowing fee
Naturally, these loans are only suited to an occasion where there is a profitable trade in evidence on the same blockchain. As a lender who is willing to make crypto funds available, you make a small profit on every transaction and the same funds can be available to re-use in minutes.
As a crypto borrower, instant loans give you access to instant crypto credit lines, with minimal collateral required. In addition, most DeFi platforms do not require you to complete a registration process, in order to preserve their users’ anonymity.
For lenders, offering crypto funding for this type of loan provides a fast, high-interest source of passive income from otherwise-redundant currency and is virtually risk-free, given that your platform has appropriate security protocols in place.
If you are a potential borrower, beware of opting for loans where the T&Cs sound ‘too good to be true’. You might see them offered on DeFi projects and are often advertised as ‘crypto loans without collateral’ to attract attention. However, they can potentially be scams and require additional verification and scrutiny before getting involved.
Funding for longer term crypto loans is usually made available by die-hard holders. They have no need to access their cryptocurrency in a hurry and it provides them with a reliable passive income.
As a borrower who does not have a bank account, or otherwise struggles to obtain loans through traditional institutions, crypto loans can provide you with an excellent alternative. On some crypto margin lending platforms, you can access fiat currency using cryptocurrency as collateral.
Alternatively, if you want to trade in crypto, you can easily access funding for that purpose at a relatively low cost. Although some platforms will only accept repayments in the same currency as the loan, others will allow you to repay using any of the major crypto coins, or using cash.
Collateral is a word that is used repeatedly in connection with crypto margin lending, so we will now explain what it is and why it’s important to understand how it’s used.
You do not have to undergo credit checks to borrow cryptocurrency, so it’s a world apart from obtaining a traditional fiat currency loan. This means that even if you do not have a bank account or a good credit history, you will still be able to borrow crypto.
When you apply for a crypto loan, you will be asked to provide a specified amount of collateral as a security deposit. In this way, crypto lenders are able to reduce their own lending risk. In the event that you were unable to repay your loan, your collateral deposit would be seized to offset the debt.
Collateral is also used by crypto loan providers to assess a lending risk and adjust the terms of a crypto loan accordingly. So, the amount of collateral you have available will affect the amount you can borrow, the repayment period and the interest rate (APR) applied.
In simple terms, the higher the collateral, the lower the risk for lenders, which is calculated using a Loan To Value ratio. LTV is the ratio of the value of your loan against the value of your collateral. By using LTV in this way crypto loan providers can considerably reduce their risk when offering crypto loans.
By using a trusted crypto lending platform and the most stable crypto assets as collateral, you’ll have the best chance of completing a successful transaction. But before you rush into lending your coins or borrowing any, there are a few things to consider.
It’s vital to grasp the element of risk involved when you hand over custody of your crypto coins. As soon as those coins leave your wallet, you’ll have to trust a third party with handling them. In addition, your coins may not be immediately accessible to withdraw should your plans change. Lastly, projects are often targeted by hackers, so make extra sure that high-level security protocols are in place.
Cryptocurrency is a highly volatile product and prices can rise or fall substantially in a very short period of time. So, before lending your crypto remember that your coins will be out of reach for the duration of the contract, meaning that you can’t react to downturns in the crypto market.
There’s plenty of projects and platforms available where you can lend crypto or borrow it, so it’s important to shop around and find the most lucrative deal. You should look for the best interest rates and the most favourable contract. Always be sure to read the terms and conditions thoroughly before committing, it’s a tedious task, but a vital one.
Lending or borrowing with a new crypto platform comes with its own set of risks. Some very clever and complex scams have been uncovered and scammers can cover up their activities well. Unless you have strong evidence that the platform is trustworthy, it’s better to wait and watch before getting involved.
There are thousands of different cryptos available, but these are the top four in terms of market capitalization and availability.
The very first and most popular cryptocurrency, Bitcoin (BTC), was created in 2008 and to this day its origins remain something of a mystery. Bitcoin is by far the most valuable cryptocurrency and its epic rises and falls in value are legendary. It has been estimated over 100 million accounts hold Bitcoin, but the highest percentage of coins are owned by whales.
As Bitcoin is the most prevalent crypto in the world, you won’t have any trouble finding a trading platform which offers online Bitcoin margin lending. With that fact in mind, you can afford to be choosy and take your pick of the very best Bitcoin margin lending offers.
Ethereum is a decentralised, open-source blockchain. The chain uses Ether (ETH) as its native cryptocurrency. Ethereum is the second largest blockchain, as defined by market capitalisation, having recently reached a value in excess of £300 billion. Around 70 million cryptocurrency wallets hold some Ethereum.
Ethereum margin lending is almost as popular as Bitcoin margin lending, so again you will have your pick of the very best platforms and find some sensational deals, regardless of whether you want to lend or borrow.
Originally known as RealCoin, this cryptocurrency was the first to be labelled as a ‘stablecoin’. Digital currencies categorised as stablecoins are directly linked to a major fiat currency. Tether earned its reputation as it was one of the first cryptocurrencies to ‘tether’ its market value to the USD.
Bearing in mind that users can redeem Tethers in USD and there are an estimated 69 billion Tether coins currently circulating, it’s also a very popular currency for crypto lenders, as well as those seeking crypto loans.
XRP is the native digital currency of Ripple, hence the long-standing confusion between the two on many crypto exchanges and broker platforms. The currency was originally developed to reduce transaction times and transfer fees for major financial institutions, but it has since become popular for retail users too.
Approximately 47 million XRP coins are currently in circulation, but there are fewer lenders than for the top three cryptocurrencies, so it can be a very lucrative option for those willing to offer their coins for crypto margin lending.
We hope that you have found our guide to online margin lending helpful and informative. As you can see, there are some very obvious advantages to crypto margin lending, but there are also some risk factors to consider and two main choices to be made.
Firstly, you have to decide whether to opt for a safer CeFi platform, or the more lucrative DeFi type. Secondly, online Bitcoin margin lending and Ethereum margin lending are the most popular, meaning a bigger selection of platforms to choose from, but some of the less stable crypto coins can bring you better returns.
Before you can decide which is the best online Bitcoin margin lending platform, it’s important to understand the differences between DeFi and CeFi, as well as knowing the positive or negative aspects to each. Our comprehensive guide to crypto margin lending explains the differences and will help you to decide which is your best option.
It’s always wise to question the credentials of any platform that will essentially have control of your valuable assets. In our extensive review, we pose the question “is Nexo IO legit?” and then move on to answer it honestly. If you are considering using this platform, then it’s a must-read document.
As you’ll already know, there are many crypto trading platforms available and they all offer different options to crypto enthusiasts. In our extensive crypto platform reviews, we cover every aspect of the online margin lending facilities the platform has available, so why not head over and see if you can find what you are looking for?
There are several different ways to generate an income from your cryptocurrency holding and certain risk factors to take into account as well. We have covered everything you need to know about this subject in our unique guide to crypto margin lending. It’s essential reading for anyone who is considering getting involved.
Collateral is a word that you’ll frequently encounter in connection with crypto margin lending. There are two different ways it is used by crypto lenders and it has an effect on every aspect of a loan. It’s a complex subject, but we’ve explained it in simple terms in our crypto margin lending guide, you’ll learn all you need to know by reading it.