Since its unveiling, Bitcoin has shown immense potential to upend the structures of legacy global finance, but a killer app is yet to emerge. However, the search for the killer app could be over if crypto lending takes off.
If figures from the niche are anything to go by, crypto lending is set to be the most significant thing out of the crypto industry. For example, data from Credmark, a crypto data company, indicates the crypto lending market rose sharply between 2019 and 2020. Specifically, from Q3 2019 to Q4 2020, the market recorded an 1170% rise in the total active collateral.
What is a crypto lending platform?
Crypto lending refers to a niche of the cryptocurrency industry where crypto-asset holders lend out their coins or borrow against the assets as collateral. Therefore, a crypto lending platform is a marketplace where borrowers take loans and lenders earn passive income from their crypto-asset holding.
Some crypto firms like BlockFi and Celsius Network have created lending platforms with transactions worth millions of dollars. According to DeFi Pulse, a site that offers the latest rankings and analytics of the decentralized finance (DeFi) sector, MakerDAO has $14.52 billion in total value locked.
Crypto lending works similar to the traditional banking industry but with digital assets instead of fiat. An investor opens an account with a lending platform, deposits crypto, and earns interest.
Furthermore, the crypto lending sector falls into the two main categories of the crypto industry: centralized finance (CeFi) and decentralized finance (DeFi). In CeFi, transactions go through third-party service providers, while in DeFi, transactions are peer-to-peer, with no third-party gatekeepers.
Some of the leading lending platforms include:
BlockFi is an excellent platform to onboard into the crypto lending ecosystem because it follows a centralized structure. As with all the crypto-focused businesses in centralized finance (CeFi), BlockFi operates like traditional banks. That means users get the best of both worlds: the security of traditional banking and the income potential of cryptocurrencies.
Like banks, BlockFi lets users open savings accounts, deposit coins, and begin earning interest. Users can fund their accounts with 13 coins, including Ethereum (ETH), Bitcoin (BTC), and Litecoin (LTC), and earn interest rates ranging from 3% to 9.3%.
However, it is worth noting that the interest rate regime is floating. A floating interest rate regime fluctuates periodically. The rate moves up or down as a floating boat would on water, meaning the current rate depends on the conditions in the market. With a floating interest rate, lenders can exploit the full income potential of a volatile market, although it raises the risk profile in case of a downturn.
BlockFi boasts over $10 billion in assets and a global clientele numbering over a million. Users can withdraw funds without charge once per month, and any extra withdrawal requests will attract a small surcharge.
Cryptocurrency burst onto the global scene primarily because supporters argued it could define a new global financial system that cuts out gatekeepers. While significant steps have been made to this end, there is still a long way ahead. Interestingly, CoinRabbit is among the vanguard crypto-focused businesses intent on materializing crypto’s original objective.
CoinRabbit is a crypto lending platform that matches lenders and buyers without requiring KYC procedures. The absence of KYC means users can transact anonymously, which some could find most appropriate.
Besides non-KYC, users can also withdraw funds without charge, leaving them with maximum possible returns. Additionally, all stablecoin deposits attract an annual percentage rate (APR) between 12% and 16%. What’s more, CoinRabbit implements one of the fastest deposit processes in the market, taking you less than 15 minutes to run through.
Furthermore, CoinRabbit does not restrict the savings and withdrawal amounts. Users can also open multiple savings accounts, each with a different coin.
Celsius is a crypto lending platform like no other, especially when speaking interest rates and coin variety. On the one hand, lenders can generate about 17% return on their assets, while on the other hand, borrowers do not face punitive rates. The balance between the competing sides of the market has made Celsius a popular crypto lending platform globally.
Established in 2017, Celsius has processed more than $922 million in rewards and yields and holds assets worth over $20.9 billion. The figures are a testament that Celsius’s over 1.7 million users trust the platform.
Speaking of trust, Celsius has gone to great lengths to demonstrate to users that it can keep their funds safe. The business obtained a FinCEN certification early on to acquire legitimacy in the United States.
What’s more, Celsius claims to provide fair and transparent services, including low rates for loans, quick transactions, and zero fees.
MakerDAO is one of the most utilized crypto lending platforms in the DeFi niche. The decentralized credit platform is built on the Ethereum blockchain, and Dai (DAI) is the native token. Dai is a stablecoin whose value corresponds to the US dollar (USD).
Users get credit in the form of Dai with collateral, including Ethereum (ETH) and other Ethereum-based cryptocurrencies. The debt incurs interest (also called stability fee) that accrues monthly. Maker users can ask for Dai debt up to 66% of the collateral’s value.
According to DeFi Pulse, MakerDAO is the biggest DeFi project in the lending sector, with more than $14 billion in total value locked (TVL).
Aave is similar to Maker concerning the decentralization of transactions. When it went live in 2020, the decentralized liquidity protocol promised an open-source platform built on the Ethereum blockchain. It means third-party developers can build decentralized applications (dApps) and other services on top of the Aave Protocol.
To use Aave, investors only need to deposit any amount of a preferred cryptocurrency. The assets will start earning interest immediately – the interest rate is calculated based on market demand. Additionally, users can secure loans on the platform by collateralizing the deposited assets. The beauty of Aave is that borrowers can offset the interest incurred with interest earned on the deposited funds.
Binance is primarily a cryptocurrency exchange, but the platform has spread itself as far as crypto lending. Given its reputation as a likable exchange, the platform could leverage the trust and the vast ecosystem it has created to revolutionize the crypto lending sector.
One of Binance’s strengths is Binance Coin (BNB), an altcoin geared at streamlining operations. Specifically, the coin is spearheading Binance’s foray into DeFi. With BNB, users can buy and sell crypto assets, as well as stake the coin for passive income.
The Compound Protocol was launched in September 2018 on the Ethereum blockchain to decentralize finance. To this end, the developers open-sourced the entire codebase.
The protocol leverages complex algorithms to enable users to earn interest on assets or access credit against their assets. Compound is entirely decentralized and open to anyone with assets and willing to supply them to its liquidity pool. Furthermore, the platform calculates interest rates based on supply and demand forces.
Because of easy access and democratized governance, Compound is a popular platform in the DeFi ecosystem. In fact, DeFi Pulse ranks it the third-best crypto lending platform based on total value locked (TVL) – Compound’s TVL was $6.23 billion at writing.
Additionally, Compound has a native token COMP for faster and smoother transactions. Users can also stake the token, which has attractive yields.
Crypto lending is booming in the DeFi ecosystem, with more than 50 projects under DeFi Pulse’s radar. Alchemix is one of these projects, besides Aave, Maker, Compound, etc.
Alchemix is one of the youngest crypto lending protocols in the market, having launched in March 2021. Like many others, Alchemix is Ethereum-based, but it takes the concept of crypto lending a notch higher. The platform’s protocol has a unique feature that automatically makes the loans pay themselves back.
Alchemix accepts stablecoin deposits, which users can collateralize and earn yields. To pay debt automatically, the protocol sends the yield generated on user assets to pay the interest accrued on borrowed funds. The automation makes Alchemix a unique platform and its most vital selling point.
YouHodler is one of the best crypto lending platforms based on the loan-to-value ratio. The loan to value (LTV) ratio is a composite index used to adjust the lending and borrowing of crypto on various platforms. YouHodler’s LTV is approximately 90%.
What’s more, YouHodler offers instant cash loans with either Bitcoin (BTC) or Tether (USDT) as collateral. The platform also supports fiat as collateral, including US dollars (USD), euros (EUR), Swiss franc (CHF), and British pound (GBP).
Most crypto lending platforms already discussed are overwhelmingly web-based. This means they lock out potential users who access the internet via smartphones. Thankfully, CoinLoan aims to disrupt the status quo by offering mobile-first services.
CoinLoan has aesthetically designed iOS and Android apps that enable users to manage their assets seamlessly, as well as participate in the credit market. On top of that, users can deposit and withdraw funds without charges.
If blockchain is the future of finance, then crypto lending platforms will be essential to the technology’s success. As already apparent, crypto lending projects have billions of dollars in locked value and have sufficient momentum to break even.
Nevertheless, there is always that nagging question: is the crypto lending ecosystem safe? As with any upcoming niche, crypto lending has many challenges, but users can remain safe if they know better. For example, one must ascertain that the preferred platform is reputable and has proper measures to secure user assets.