Cryptocurrency Credit Lines
Nexo, the world's biggest and most popular cryptocurrency loan service provider, offers the only insured account that lets users from over 300 jurisdictions borrow instantly in 45+ fiat currencies and earn daily interest on their assets. Nexo's Instant Crypto Credit Line™ allows users to deposit BTC, ETH, XRP, LTC, BNB, NEXO, and many more, and get a loan with flexible terms and APR as low as 5.9% per year. The collateral of each loan is subject to custodial insurance of $100 million, provided by BitGo and Lloyds of London. The Nexo Card allows users to access their credit line worldwide, receive instant cashback on all purchases, and make payments in local currencies without any fees.
Compound is an open-source, autonomous protocol built for developers. It allows users to unlock a universe of new financial applications including interest earnings and credit lines. Compound is built as a decentralized protocol that establishes money markets with algorithmically set interest rates based on supply and demand. The supported assets include ETH, USDC, BAT, DAI, and others. Each market has its own Supply interest rate (APR). The interest isn't distributed but is earned by holding cTokens, Compoind's token. Over time, each cToken becomes convertible into an increasing amount of its underlying asset.
Founded in 2016, SALT Lending is among the first and most established crypto-backed loan service providers worldwide. The company accepts cryptocurrencies as collateral for credit lines starting from $5000, with interest rates from 5.95%, and an LTV between 30% and 70%. The supported assets include BTC, BCH, ETH, LTC, and others. SALT Lending's app supports real-time notifications that allow users to keep an eye on their account balance and track their assets in one place. The deposited collateral is kept in cold storage and protected by multi-signature security features. It is also covered by crime and cyber liability insurance policies.
Unchained Capital is a bitcoin native financial services company offering collaborative custody multi-sig vaults and loans for bitcoin holders. Over time, the platform managed to establish itself among the leading crypto-backed loan service providers worldwide. The company issues loans up to $1 000 000, approved within the same business day. The APRs vary from 10.91% up to 14.22%, while the interest rates are in the range of 9.00% to 14.00%. The platform also offers business loans that can help companies free up working capital, consolidate debt, and retain the ownership of their crypto assets, while at the same time taking advantage of working capital and long liquidity. The minimum loan amount is for domestic loans is set at $10 000 and for international loans, it is $100 000. The LTV is set at 50%.
Zerion provides a trustless bank for Decentralized Finance (DeFi), built on top of industry leading platforms like Uniswap, MakerDAO, and Compound. This brings Zerion's users a variety of possibilities - to lend their digital assets and earn interest, to get access to crypto-backed loans, and to easily trade cryptocurrencies. Through MakerDAO, the platform provides stablecoin-backed loan services. Zerion works with a variety of wallets, including MetaMask, TrustWallet, Coinbase Wallet, and others.
InstaDApp is a trustless smart wallet for decentralized finance that allows users to easily borrow, lend, leverage, swap, and transact cryptocurrencies. The platform's users can deposit cryptos to continuously earn variable algorithmic interest over time. Aside from that, they can easily perform complex financial operations like leverage, shorting or debt switching to take advantage of rates, liquidations and more. InstaDApp allows users to make cross-protocol transactions and operate with their funds through direct integration with a variety of service providers like MakerDAO, Compound, Uniswap, and Bridge, all in one dashboard.
BZx is considered the most powerful open finance protocol that allows users to build applications, empowering lenders, borrowers, and traders. The flexible decentralized finance protocol works as a separate financial ecosystem, powered by Ethereum. BZx has several products targeted at cryptocurrency borrowers and lenders. Through Staked, for example, bZx helps institutional investors reliably and securely compound their crypto by 5% - 100% annually through staking and lending. Fulcrum, a DeFi margin lending and trading platform, and Torque, provider of indefinite-loan services with fixed interest rates, are also part of bZx's product portfolio which allow investors to take advantage of crypto borrowing and lending.
BTCPOP offers a P2P banking experience, including instant and crypto-backed loans, investments, and more. Instead of on a credit score, the peer-to-peer lending process is based entirely on reputation. The platform supports a variety of cryptocurrencies, including BTC, ETH, ETC, LTC, and others. There is a 1% listing fee as well as fees for instant loans, including 4% for no collateral credit lines with 30% APR, 2% for collateral-verified loans with 15% APR, and 3% for collateral-unverified loans with 25% APR.
Bankera is focused on building the digital bank for the blockchain era by offering a convenient and affordable bank account alternative. The platform has several features, including an exchange, a payment system, and crypto-backed loan services. Bankera's customers can take advantage of crypto-backed credit lines with a super low minimum of €25 (and up to €1 million) and an LTV in the range of 25% to 75%. The loans have flexible repayment schedules and rates in the range of 6.95% to 16.95%, depending on the size of the loan and the LTV. Bankera's services are used by crypto HODLers, investment funds, brokerages and exchanges, and businesses with exposure to cryptocurrencies.
Genesis Capital, an affiliate of Genesis Trading, is specialized in institutional digital currency lending services. Genesis Capital's clients have the ability to borrow BTC, ETH, and other cryptocurrencies in large sizes over a fixed-term duration (between two weeks and six months). The loan terms and structures are specifically designed to meet the needs of institutional funds, market-makers and other entities. The minimum loan size is $100 000 and the credit is delivered directly into the client's wallet. Genesis Capital's clients can also take advantage of large block short-sales with (minimum size of $250 000) through Genesis Trading’s OTC platform after onboarding.
YouHodler is a blockchain-based financial ecosystem providing cryptocurrency-backed lending services. The platform tries to lure users by offering crypto-backed loans with up to 90% LTV and a minimum loan amount starting at just $100. The cash and crypto loans are available in a variety of currencies, including EUR, USD, USDT, BTC, and others. The platform supports over 12 of the most popular cryptocurrencies, including BTC, ETH, XRP, LTC, BNB, BCH, XLM, and more.
KAMBO is a cryptocurrency-backed loan service provider, part of the Global Kapital Group. The loans start at $1000 and the terms include an APR of 14% and an LTV of 50%. The platform doesn't charge any origination fees and the borrower pays only the interest. There are no prepayment penalties which means users can repay their loans anytime they want. KAMBO accepts BTC and ETH as collateral for the loans.
LendaBit.com is a P2P lending platform connecting borrowers and lenders and helping them strike crypto-backed loan deals. Prospective borrowers and lenders place Loan Requests and Loan Offers and indicate the loan parameters they prefer: interest rate, term, loan amount, etc. The minimum and maximum lending periods are between 1 day and 3 years accordingly. The loan credit lines are available in BTC and USDT-Omni, which, alongside with ETH, are also accepted as collateral. LendaBit also offers instant credit lines with a 0% interest rate during the first 45 days. The platform charges a system fee (1% from the borrower and 0.5% from the lender).
MoneyToken is a platform that provides crypto-backed loan and asset management services. The interest rates for borrowers start from 10%, while for lenders, they are up to 10%. To become a lender, however, one should deposit at least $100 000, although the company promises to lower the minimum sum in the future. The supported collateral currencies include BCH (ABC), ETH, BTC, and BNB. The loan currencies clients can choose from are USDT and DAI. The platform also has a 'VIP Client' service that features margin trading.
CoinList was founded in 2017 in San Francisco. Initially, it started operating as a capital-raising platform, but has, later on, switched to offering several features and products. Among them is also a cryptocurrency lending service. The platform supports several assets including BTC, BCH, ETH, ETC, LTC, as well as ERC20 tokens and stablecoins. The interest rates vary depending on the asset. For example, the interest rates for loan offerings include 3.65% for BTC, 11.86% for BCH, 4.56% for ETH, 5.48% for LTC, and 7.3% on TUSD- and USDC-backed credit lines.
Lendingblock is a cross-chain securities lending and borrowing platform for the crypto economy. The service provider targets institutional clients, such as hedge funds, exchanges, asset managers, mining companies, and market makers. The platform supports a variety of assets, including BTC, ETH, PAX, and USDT. The minimum loan amount starts at $100 000 and goes up to $1 000 000. Borrowed cross-chain assets can be taken off-exchange to short sell, facilitate inventory management, or settle obligations elsewhere.
BlockFi provides several wealth management products, intended to fully satisfy the needs of crypto investors. The BlockFi credit line service can be used for a variety of purposes - from diversifying investments and paying down debt, to buying a car or purchasing real estate. Clients can use their BTC, ETH, or LTC and take advantage of crypto-backed loans at an annual interest rate of around 4.5% and an LTV of 50%. BlockFi is the only independent lender with institutional backing from investors including Valar, Galaxy Digital, Susquehanna, and Coinbase.
INLOCK is a peer-to-peer crypto-backed lending platform based in Europe. The lending platform enables customers to use their cryptocurrencies as collateral to get a stablecoin loan. INLOCK's crypto loans allow clients to customize the collateralization rate to maximize the credit limit, as well as to become a lender by depositing USDC and earn interest. The loans have no fixed repayment schedule and start from $100. The platform works on a P2P-basis and doesn't conduct any credit checks. Loans are granted almost instantly.
Mode is a London-based Fintech firm focused on building a next-gen ecosystem of products and services that combine the benefits of traditional and digital finance. It provides access to interest-earning accounts, investment products, crypto-backed cash loans, and virtual and physical cards. Mode currently supports GBP and BTC but plans to add additional currencies in the future. Mode is available as a mobile app for iOS, but an Android release is also in the company's plans.
DYdX is a decentralized cryptocurrency exchange for margin trading founded in 2017. Aside from trading, users can also borrow and lend any of the supported assets. The platform supports ETH, DAI, and USDC. The interest rates on dYdX loans vary from 0.44% to 6.17%, depending on the asset used as collateral. The borrowed assets are directly transferred to the users' wallets. The dYdX platform is powered by smart contracts on the Ethereum Blockchain.
Aave is an open-source and non-custodial protocol that allows users to earn interest on deposits and borrow assets. The protocol is implemented as a set of smart contracts on top of the Ethereum blockchain. Through Flash Loans, one of Aave's leading features, the platform provides the first uncollateralized loan option in DeFi. It enables you to borrow instantly and easily, without having to deposit any collateral, provided that the liquidity is returned to the pool within one transaction block. Among the supported assets are ETH, DAI, BAT, MKR, REP, USDC, USDT, and others. The rates depend on several factors, including the type of asset and whether the APR is stable or variable.
Nebeus allows users to easily trade, store, remit, lend, borrow, and spend cryptocurrencies. Clients can get an instant loan or open crypto savings account with an APY of 13.25%. The loan is deposited directly in the users' accounts in BTC, ETH or EUR. The minimum loan amount starts from 0.006 BTC or 0.3 ETH. The rates for loans are in the range of 6.12% to 15.55%, with an LTV of up to 85%. There are no credit checks, so opening an account with Nebeus takes no more than 2 minutes and is completely free. Deposits of equivalent more than €5000 are kept with a reputable custodian, while amounts equivalent to less than €5000 are stored in Nebeus' cold storage.
Lendo is a FinTech company that provides its clients with a complete crypto-banking experience. The platform enables regulated lenders to provide fiat loans in exchange for cryptocurrency collateral. Lendo works only with fully-licensed lending companies (all lenders from the UK, for example, are regulated by the FCA). Users in need of a crypto-backed credit line can use Lendo to access instant cash loans from the pre-approved lenders. Lendo also issues debit cards that allow users to spend digital currencies anywhere with real-time transactions. The platform also works as a merchant system and an exchange with institutional-grade trading features.
HODL Finance is a European digital lending company that issues loans backed by cryptocurrency and other digital assets. The platform supports over 50 currencies. All collateral is kept in cold storage wallets. HODL Finance points out that the approximate APR on crypto-backed loans is 12%. After filling an application form and getting approved by the platform's representatives, users can also start earning interest on stablecoin deposits (USDT and USDC supported). HODL Finance was founded in 2014 by the shareholders of the P2P lending platform, SAVY.
AtomicLoans is a decentralized protocol for P2P Bitcoin-backed loans. The team behind the project describes it as the first-ever decentralized protocol for cross-chain debt, allowing almost all crypto assets as collateral. The platform avoids middlemen and provides users with the opportunity to negotiate the terms of the loans on their own. The whole borrowing and lending process takes place directly from the users' crypto wallets with full custody of the funds set in the debt agreements. AtomicLoans targets crypto miners and digital asset investors.
Celsius Network is among the most popular crypto credit line providers. The platform allows users to earn, borrow, and pay directly on the Blockchain. Users can deposit their crypto assets and quickly borrow cash against them. Celsius Network doesn't charge any fees and all deposited assets are held in BitGo wallets, covered by $100m Lloyd’s Insurance. The platform supports a variety of assets, including BTC, ETH, LTC, XRP, BCH, XLM, and many others. The service provider claims that its users pay the lowest interest on loans (cash and stablecoin loans starting at 3.47%) while it also shares up to 80% of Celsius’ revenues with the depositors.
Helio Lending is a cryptocurrency lender, based in Australia. The platform provides cryptocurrency holders a safe and secure way to access fiat funds, without selling their assets. Helio Lending offers flexible loan terms, including interest from 9.5% per year and loan amounts in the range of $500 to $5 000 000. The platform supports BTC, ETH, LTC, and XRP. The borrower can choose the repayment type of the loan (principal and interest or only interest), as well as the preferred LTV (in the range of 40% to 70%). Helio Lending performs KYC and AML checks.
Nuo Network is a non-custodial way to lend, borrow or margin trade crypto assets. The platform works as a decentralized debt marketplace that connects lenders and borrowers by using smart contracts. Users can instantly borrow ETH or ERC20 tokens from debt reserves by staking collateral. The rates can be as low as 2.00% and as high as 20.00%. They are determined by the asset and its current supply and demand. Nuo Network also allows investors to create a debt reserve and earn interest on their cryptocurrencies. The lending rates vary between 0.3% and 16.7%. The platform supports ETH, DAI, MKR and several ERC20 tokens.
Ledn provides credit and savings products, tailored to the needs of Bitcoin investors. Users who need a dollar credit line can take advantage of Ledn's Bitcoin-backed loan service with a monthly interest of 1%. Loans are funded within 24 hours of approval and have a flexible payment schedule that doesn't require fixed monthly payments. Digital assets, deposited on the platform, are kept in insured custody. Ledn is incorporated under the Federal Laws of Canada and is compliant with Canadian regulations.
CoinLoan claims to be the first P2P lending platform for crypto-backed loans. CoinLoan relies on overcollateralization to ensure the full loan repayment happens on time. CoinLoan's key advantages are the straightforward process and its full automation, bank-grade security, and the variety of supported cryptocurrencies. The platform supports fiat (USD, EUR, GBP, RUB), cryptocurrencies (BTC, BCH, ETH, LTC, XMR, CLT, ONT), and stablecoins (TUSD, USDC, PAX, DAI, USDT). CoinLoan is registered and operates from Estonia.
Biterest is a P2P lending marketplace, providing an intermediary service and connection between lenders and borrowers. All loans must be collateralized with Bitcoin. The amount of collateral depends on the loan amount, annual interest rate, loan period and discount. According to Biterest, the average annual interest rate is approximately 15%. A requested loan amount can be transferred either in fiat currency (PayPal, Yandex.money, WebMoney, QIWI) or cryptocurrency (Bitcoin, Ethereum, Bitcoin Cash, Ripple). To become a borrower or a lender, one only needs to provide an email address.
Cred is a global financial services platform serving customers in over 180 countries. The company is a licensed lender and leverages a substantial balance sheet and proprietary technology to provide business and retail credit. Users can take advantage of Cred's services to get a crypto-backed loan in EUR, USD, or other currencies. Clients who deposit digital assets can also earn interest, which is paid quarterly in crypto and fiat. Cred accepts close to 30 cryptocurrencies as collateral.
Oxygen is a decentralized REPO marketplace for borrowing and lending cryptocurrencies. The platform is based on the Ethereum blockchain and is created by the founders of Changelly. It allows users to generate income from lending, raise liquidity against crypto collateral, and borrow crypto assets to go short. The platform is used by individuals, professional traders, miners, VC and cryptocurrency funds, institutional investors, exchanges, and ICO projects. Becoming a part of Oxygen requires an annual fee in the excess of $250 USD for retail clients and $25,000 for institutional members.
AltLending is an institutional lending platform that makes U.S. Dollar loans, backed by the blockchain assets of the borrowers. The platform supports Bitcoin (BTC) and Ethereum (ETH). The loans have a transparent and simple cost structure with no hidden fees. There are monthly interest payments and a one-time closing fee. AltLending claims to have the most flexible LTV parameters - between 35% and 50%. The platform has three lines of credit - interest-only (with maturities between 6 to 18 months), amortized (consecutive monthly principal and interest payments with a 12 month to 18-month maturity), and a revolving credit line (for the short to medium term capital needs of businesses).
DrawBridge Lending provides Bitcoin-backed institutional loan services. The platform offers competitive terms, including an APR between 0% and 3%, 1, 2 and 6-month tenors, and an LTV in the range of 30% to 75%. All deposited digital assets are protected and secured in a cold storage vault with a qualified and insured third-party custodian. In accordance with national regulatory guidelines, the DrawBridge platform only serves institutional clients and accredited investors. The requirement to use DrawBridge Lending's services is a net worth of over $1,000,000.
RCN is a global credit network that connects lenders, borrowers and loan originators on the blockchain to create frictionless, transparent and borderless debt markets. The platform harnesses blockchain technology to bridge credit supply and demand across borders. RCN supports two types of loans - cosigner-backed loans which are first requested by a Borrower to an Originator (they are then broadcasted to the decentralized marketplace in a search of a Creditor) and crypto-collateral-backed loans, requested directly from the Borrower (can vary in their durations, interest rates, LTV ratios, and amortization schedules).
Through the C-LEVER service, Crypterium, the world's first crypto bank, provides instant, global, and low-cost loans. Borrowers can deposit cryptocurrencies as collateral and get a personal loan issued in stablecoins (USDT). C-LEVER's starting interest rates are 0.5% per month. The LTV is 50% and the maximum loan duration is fixed at 12 months. The platform supports Bitcoin and Ethereum as collateral. Loan applications are approved in no more than 10 minutes. There are no extra fees for earlier repays.
The reputation score is a score between 0 and 1000, assigned to products based on our algorithm. It looks at factors such as popularity on Reddit, Twitter mentions, Telegram links, crypto news media mentions, podcast references, and other signals. Unlike our market data methodology for Nomics (which are transparent), the reputation score methodology is opaque to prevent manipulation.
Frequently Asked Questions
What is a crypto loan?
A crypto loan is similar to traditional credit lines where a financial service provider lends you capital in exchange for collateral. In the crypto world, the form of collateral is the cryptocurrencies in your portfolio.
By allowing investors to monetize their crypto assets, cryptocurrency credit lines provide individuals with spending power without having to sell their possessions. Crypto lending services allow you to get a credit in fiat by depositing cryptocurrencies in the service provider’s account.
Crypto credit lines are a good solution for cryptocurrency investors who want to get quick and convenient access to capital by using their digital assets as collateral. The best thing about cryptocurrency credit lines is that, to get funding, you don’t have to sell your crypto assets. Unlike traditional credit lines that you can get from a bank, crypto lending service providers also don’t set any limits on what you can spend the funds for. Whether it is to buy a new home, to repair your car, to pay your mortgage – the choice is entirely yours.
However, crypto lending services can benefit investors also by providing them the opportunity to earn interest on their cryptocurrency possessions. By depositing their digital currencies on the platform or directly lending them to other users, investors can earn interest while still maintain the ownership of their assets.
How does crypto lending work?
Although there are several crypto lending service providers, the majority employ quite the same business model and a pretty standard procedure. Here is how crypto lending works on practice:
1. Set up an account
As a first step, platforms require users to make an account and pass through KYC verification. Depending on the particular service provider’s policy, the user may be able to choose between a basic or an advanced KYC verification. Basic KYC procedures usually require just a name, email, and an address and come with some limitations (i.e., you may borrow no more than $10 000 per month). If you intend to strip all account restrictions, you may have to provide further details such as a selfie, alongside a photo of an identity document (ID card, passport, or driver’s license).
2. Make a deposit
Next, users are required to link their crypto wallets and deposit the particular asset they intend to use as collateral or earn interest on. The deposits are made to the platform’s wallet and can come in different forms. Although all service providers support the leading cryptocurrencies, such as Bitcoin, Ethereum, Litecoin, etc., some also have their own tokens, which can be purchased directly from the platform, as well as allow for deposits of tokenized or utility assets.
3. Receive a loan
For the majority of crypto lending service providers, this is enough to unlock the complete set of functionalities of their platforms to the users. As a matter of fact, one of the key selling points for crypto lending platforms is the fact that they don’t perform any credit checks and cut the paperwork.
From there, everything gets automated, and the lending platform provides the user with a loan. Most service providers are flexible and support several transaction methods which allow clients to receive the loan via a bank transfer, in cryptocurrency, or in their platform-issued credit card (the leading crypto lending service providers work in close cooperation with Visa and MasterCard to equip their users with branded credit cards).
4. Pay an interest
After receiving the loan, the user is required to pay interest according to the terms (interest rate percentage and payment scheme), agreed beforehand. On the other hand, if the user is depositing his funds and the platform uses them to lend another client a loan, then he can earn interest on his possessions.
The procedure sounds pretty straightforward, and in reality, it really is. In fact, getting a crypto credit loan is way easier than getting a bank loan, for example. However, due to the relative infancy of the whole niche, it is quite reasonable to have questions about the mechanics of the process and to be wondering how safe it really is to lend your cryptocurrencies to a crypto credit service provider. Let’s go over the most common questions you may face:
How is the whole process controlled?
To ensure the swift execution of the whole process, crypto credit line providers base their platforms on smart contracts. That way, everything is governed by a pre-defined logic, coded in the contract. Clauses from the contract can be automatically triggered upon certain events or conditions, so there is no risk involved for the parties.
Is there any risk for the clients’ funds?
All loan contracts are replicated on the platforms’ blockchains, which makes them completely incorruptible and entirely verifiable. There is also no risk for the clients’ crypto assets deposited into the system, as they are stored securely and may be unlocked only upon default on the loan. The leading crypto lending service providers ensure that users’ funds are stored in cold storage wallets, while some even offer funds insurance, covering hacks, theft of private keys, or other unlawful activities.
How is the value of users’ crypto-asset deposits determined?
The value of the clients’ funds is determined in real-time by analyzing the quotes from multiple cryptocurrency exchanges. That way, the risk for both parties (the lender and the borrower) is minimized.
If the value of the users’ assets decreases, though, most platforms send warnings to either repay a part of the loan or deposit new funds. Otherwise, the contract’s terms may be triggered, and the system may automatically sell a part of the deposited cryptocurrencies to rebalance the loan. In such cases, the selling is executed at market prices for the particular moment. All funds received from the automatic transaction are applied to the users’ loan balance. On the other hand, if the value of the assets increases, the borrower can reclaim some of the collateral.
What is the Loan-to-Value (LTV) ratio used for?
To evaluate the state of the users’ balance, crypto lending platforms have adopted the LTV ratio. It serves as an indicator that represents the size of the loan in comparison to the assets used as collateral. For example, if you have an outstanding loan balance of $5 000 and the value of the deposited collateral is estimated at $10 000, then the LTV is 50%. If, on the other hand, at some point, the value of your collateral drops below $5 000 and the LTV goes out-of-bounds, you will be required to deposit additional funds or repay a part of the loan.
Some platforms also use terms like "collateral health" or "collateral quality." Both terms indicate whether there is any liquidation risk for your collateral. The collateral health is based on the LTV indicator for the given period.
What is a crypto lending platform?
Crypto lending service providers are companies that allow their users to get a loan by depositing a certain amount of cryptocurrencies as collateral. Once the borrower repays the loan, he can get his funds back. Although the crypto lending methodology can differ, depending on the specific requirements of the service provider, the general idea is the same – to take advantage of quick liquidity, without having to sell your cryptocurrencies.
To understand the different types of crypto lending service providers, we should analyze the two main categories that their business models are classified in - public and private (also known as "decentralized" and "centralized"). However, it is worth noting that things aren’t always black and white, and there are hybrid companies that share a few characteristics of both types. The information of public companies, for example, is available to the broad audience and can be easily verified. Private lenders, on the other hand, may or may not allow for such access to their data.
To understand the different types of crypto lending service providers, let’s take a look at a few examples. One of the leaders in the industry, Nexo, operates a business model much similar to traditional banks or credit lending institutions. The company is the one which lends you funds and which will receive ownership of your assets, should you default on your loan. The relationship here is two-sided and pretty straightforward as the borrower interacts directly with the platform.
Next are the companies, operating on a P2P basis, like CoinLoan, for example. What they do is to serve as intermediaries between borrowers and lenders. They provide the platform and connect the interested parties, allowing Bitcoin holders to use their assets as collateral to get a loan from users willing to lend cash. These types of companies can be actively involved in the process by matching lenders, and borrowers automatically or simply remain passive and just maintain the environment where the transactions can take place. Usually, the P2P-based crypto credit companies make money by collecting fees from the transactions taking place on the platform.
Last, there are companies that maintain another type of primary business activity but offer lending services as well. The most prominent example is Binance – the world’s leading cryptocurrency exchange. The platform provides a set of lending and deposit products, intended to equip its users with all types of crypto-based financial services.
What are the benefits of crypto lending services?
The main idea of crypto loans is to help you cover the needs of instant liquidity without having to sell your assets. Consider the following example – you need $5 000 to refresh the walls in your home and buy some furniture. If you have $10 000 worth of cryptocurrencies, you may consider selling them as the quickest way to fund your home remodeling. However, doing so will result in paying unnecessary transaction costs, maybe not catching the best market momentum, sacrificing your long-term investment goals, paying capital gain taxes, and so on. And not to mention the regret you might be feeling if the price of the assets you have just sold goes up in the next few days. To avoid all that, investors usually consider opportunities like cryptocurrency lending services where they can use their assets as collateral to receive cash that they can take advantage of immediately and for whatever they want. In return, investors have to pay a specified interest rate.
Cryptocurrency loans offer several advantages, such as maintaining ownership of your crypto assets, avoiding paying crypto capital gain taxes, getting quick access to capital, no credit checks, no need for extensive documentation filling, and others. Let’s take capital gain taxes, for example. Depending on the country you reside in and its local jurisdiction, when you are selling your cryptocurrencies, you may be required to pay capital gains. However, by taking advantage of crypto credit lines, you can surpass this issue. Instead of selling your assets, you can simply loan them and benefit from earning an interest rate (in some countries, though, you may be required to pay a tax on the interest gains as well).
Another advantage that crypto lending platforms often talk about is the lack of credit background inspections. Unlike traditional financial services, where you have a credit score, based on your history, with cryptocurrency credit lines, everyone can get a loan, provided that he has the needed collateral.
When browsing through the websites of the different crypto lending service providers, you will notice that they list several other benefits, such as no hidden fees and no minimum loan repayments. Some crypto credit companies even issue their own tokens to increase the usability of their platforms and provide additional perks to the user base. The holders of the platforms’ tokens can use them as collateral, as well as repay the loan in the particular token and take advantage of an interest rate discount. However, these are platform-specific, and you should always do your research before choosing which service provider to use.
Crypto loans are often considered a good idea for different types of purposes, such as investment diversification, paying off high-cost debt, launching a new business, purchasing something new, cover unexpected expenses, etc.
Now let’s take a look at how can cryptocurrency credit lines benefit the different groups of clients:
Crypto credit lines provide investors with a quick and easy way to receive capital without having to sell their assets. That way, investors can use the loan to cover their immediate capital needs, while, at the same time, retain possession of their cryptocurrencies.
By not having to sell their assets, crypto investors can save from transaction costs (costs for selling and repurchasing their cryptocurrencies), as well as take advantage of favorable price movements, should such occur.
In the last couple of years, as the industry started to mature, hedge funds have turned their focus to cryptocurrencies and even ICO investments. Today, big investment companies also choose to use crypto credit lines to help them leverage their portfolios and explore new investment opportunities by earning interests on their crypto assets or using them as collateral for obtaining cash in a quick and straightforward way.
Crypto credit lines can prove a useful tool for miners to help them cover the high expenses associated with this type of activity, such as electricity costs. Loans can also benefit miners in gaining an advantage over their competitors by helping them increase their computing power (buy better ASIC machines) and grow their operations, without sacrificing their mining rewards. ICOs and cryptocurrency businesses
Many ICOs raise capital in cryptocurrencies. Instead of selling them to be able to convert the funds into cash, businesses can take advantage of crypto loans. That way, they can ensure the quick provision of liquidity to meet their capital needs, cover operating expenses, etc.
Even crypto trading platforms today can take advantage of credit loans. Due to the specifics of their business, cryptocurrency exchanges are often in need of funds to ensure the seamless operation of their margin lending services. Crypto-backed loans can help them raise the needed capital quickly and without the complicated procedures associated with conventional loans.
VR-users and gamers
Crypto lending service providers target gamers as a key segment of the market since they receive cryptocurrencies as a gamification element. The accumulated cryptocurrencies can help users earn interest or get cash to cover all types of personal expenses and capital needs.
In a nutshell, crypto loans are an easy opportunity to earn passive income if you aren’t trading your crypto assets actively. They are also an excellent tool for long-term HODLers who believe that cryptocurrencies’ value will consistently grow, and don’t want to sell their assets.
What are the average interest rates on crypto loans?
A few years back, the average interest rates in the crypto industry were above 11%. Today, due to the increased competition in the field, the interest rates have gone down, and we have companies offering rates as low as 4.9%. At the same time, some crypto lending service providers still retain higher rates with offers of up to 14%. However, the average for the industry is estimated within the range of 6% - 8%.
A useful tool for your crypto lending service research is credit calculators, which can help test different scenarios and find out which platform offers the most competitive interest rate. Companies like Salt, Celsius, BlockFi, CryptoLending, Nebeus, and many more, have free tools to help you run through different credit schemes, plan accordingly, and find the best choice, according to your financial goals.
The general sense is that, due to the ever-increasing competition and maturity of the market, the interest rates are expected to continue going down.
It is worth noting also an interesting conclusion, made by a recent report by Graychain. According to the credit assessment startup, crypto-backed loans are growing in numbers and becoming increasingly popular, but at the same time, the lenders are struggling to reap a significant profit. By analyzing a database of loans worth $4.7 billion over two years (since the start of 2017), the Crypto Credit Report reveals that the average return on loans is 1.8%. On the other hand, the costs to the borrower are estimated to be in the range of 6% - 10% on an annual basis. The reason for that disparity, according to the report, is the fact that the majority of the loans are short-term and are opened and closed very quickly.
Which are the best crypto lеnding services?
Due to the growing popularity of crypto loans, in the last two years, companies that offer lending services have started to pop up everywhere. Nexo, Celsius Network, Salt Lending, CoinLoan, BlockFi, CoinLend, and many more - today, the list of crypto credit providers is continuously growing, and there are more than 20 well-established companies, competing with each other for the crown of the best crypto lending service provider.
Thanks to the increased competition in the field, companies don’t hesitate to innovate, invest in providing a better service, growing their popularity, earning the trust of a bigger user base, etc. That is why the list of the best crypto lending service providers is so dynamic and changes so often.
To find out who is the best crypto loan provider, use our ranking system. It is updated in real-time to reflect the latest developments for each company on the list. Our ranking system is designed to help you find out which companies are worth your trust and are credible service providers worth considering.
However, as with all financial decisions, it is advisable to still perform your due diligence before you make a final choice and take out a crypto loan.
Do you have to pay taxes on crypto lending gains?
When it comes to taxation of crypto loans, there are two cases that we should focus on – when you lend your cryptocurrencies and get an interest in return, and when you use your crypto assets as collateral to borrow fiat. Here are the main differences in taxation:
Gains from lending cryptocurrencies
If you decide to put your crypto assets to work to earn you some interest, then you must know that any income that you gain is considered a taxable event and should be reported to the IRS. Any gains from crypto loans, in the form of interest, are treated as an ordinary taxable income. If the generated interest is paid in cryptocurrencies, you have to declare its market value at the time it is paid.
Using your cryptocurrencies as collateral to get a loan
If you take a loan against your crypto assets, however, then you aren’t required to pay any taxes. Using cryptocurrencies as collateral isn’t considered a taxable event because you are lending your crypto assets instead of selling them. In terms of the taxing matter, crypto-backed loans are very similar to traditional lending in the sense that you can use your home as collateral to get a loan just like you do with crypto assets. These events are considered "tax-neutral" because you retain the ownership of the asset used as collateral.
The tax benefits of crypto-backed loans make them a preferred choice for long-term investors who need quick liquidity. Tax-neutral crypto-backed loans benefit HODLers by allowing them to avoid paying capital gain taxes, associated with holding your crypto assets when they rise in value. The interest rate, on the other hand, is way lower than the capital gain taxes they are required to pay. However, there is one tricky moment that you should be aware of. If you fail to repay your loan and a procedure of liquidation is triggered, then your assets will be sold automatically according to the clauses, predefined in the smart contract. If your crypto holdings are sold partially or entirely, then this will be considered as a sale and will create a taxable event, subject to a capital gains tax. That is why, when you are on the receiving end of a margin call, you should always opt for depositing additional funds to improve the LTV, rather than allowing the service provider to sell your crypto assets (for which you will have to pay a tax).
How to choose a crypto lending service provider?
According to reports, for just two years, the market for cryptocurrency loans has managed to surpass $5 billion. With the ever-increasing popularity of crypto credit lines, the trend is expected to continue its positive trajectory, which will further grow the potential within the crypto credit market.
If you are a newcomer in a booming market with so much potential, you may wonder how to spot the best opportunities. There are plenty of companies offering crypto credit lines, and finding which one is the most suitable for your needs can often be tricky. To overcome that, one should take into account several factors:
Like with everything else in the cryptocurrency world, the first question to start with is related to the trustworthiness of the service provider, its background, reputation, client base, etc. The best way to find the most reliable service provider is to use our algorithmic ranking feature to complement your own research.
Find out more about the company’s history and origin – where is it located, what financial jurisdiction it is subject to, who are the founders, were there any troublesome cases (government investigations, official accusations, etc.). The leading crypto lenders have a whitepaper that lists all the information about the business entity, its roadmap, its goals, and the policy it adheres to when servicing its clients, and so on.
It is also a good idea to examine whether the company has attracted any funding from VC investors and, if so, who backs the company. It is always a good sign if a particular service provider is backed by a circle of prominent figures. VC investors always perform in-depth analysis and extensive research for the projects they invest in. This is a good benchmark for credibility and trustworthiness.
Last, but not least, make sure to find out how the company treats its clients in terms of ensuring the security and safe storage of their funds. We have witnessed several cases where service providers disappear with the assets of their customers. The leading crypto lending businesses usually offer insured custody for a certain amount, which guarantees that the users’ assets, deposited as collateral, are backed and at no risk.
Consider the loan terms
When you are choosing a credit line, the most important thing, of course, is to consider the financial terms, such as what is the minimum and the maximum loan amount that you can get, what is the interest rate, what is the repayment schedule, are there any additional fees, what is the maturity, etc.
Let’s start with the minimum and maximum loan amount. It is essential to check the requirements of each platform to find out whether it can lend you the sum you need. Some service providers offer loans up to $2 million. Others can’t offer less than $500. So, make sure to go through all the opportunities, once you are sure how much capital will you need.
Find out also the interest rates of each service provider. The offerings among the leading companies in the field are in the range of 5% - 14%. They are charged only on the borrowed sum and until maturity or the day you repay the loan. The interest rate for crypto loans is way lower than the offerings on traditional credit cards, for example. It is also worth noting that the industry APR (annual percentage rate) has dropped with more than 50% for the last two years. Should the competition in the field continues to grow, we can expect even lower rates.
Make sure to take into consideration the credits’ maturity as well. Most companies offer maturity up to a year. However, some are flexible and can renew your loan without requesting repayments or charge additional fees.
Don’t forget about the repayment schedule as well. Some companies have mandatory repayment schedules that you should adhere to, while others allow you to repay your loan at once or in installments, after a week or a few months, without any limitations. The repayments are usually made via bank transfers or in cryptocurrencies, deposited to the platform.
Another thing to bear in mind is to check for additional fees. Some companies, for example, charge origination fees of 1-2% on average. Others may surprise you with some hidden costs in the process. Bear in mind that the reputable platforms usually calculate the total cost of your loan and you won’t be charged anything additional.
Terms of approval
If we should highlight one of the key selling points of the crypto lending industry, it is the fact that it is open to anyone. Unlike traditional financial service providers like banks or credit institutions where you have a dossier with a credit score and history, with crypto lending platforms, things are way more relaxed. The most popular platforms don’t conduct any credit scoring and will usually lend you capital just based on your collateral.
However, some crypto credit lenders adopt credit scoring and are stricter when lending money. BlockFi, for example, states that it may take the loan amount, users’ credit history, and location in the calculation of the interest rate for a particular loan offer. Such an approach resembles the one employed by traditional credit lending companies.
The LTV ratio
Another essential metric to bear in mind when choosing a service provider is the loan-to-value (LTV) ratio. The indicator is used to identify the value of the collateral you should deposit in the platform, to be granted a loan. Depending on the platforms’ policies and the type of assets you intend to deposit, the LTV ratio can range from 20% to 50%. However, in a bid to ensure that the default risk is reduced as much as possible, some companies employ higher LTV ratios (also known as "over-collateralization"). But how does this affect your loan offer? Here is an example – if you are applying for a credit of $5 000 and the LTV ratio is 20%, this means you should deposit collateral worth $25 000. On the other hand, if the LTV is 50%, then to be granted a loan of $5 000, you should deposit $10 000.
From the borrower’s point of view, the higher the LTV, the better. In a bid to minimize the associated default risk, some companies try to operate with lower LTVs. Also, thanks to the automated nature of their platforms, once the borrower’s LTV goes out of range (for example, at levels of 60% - 70%), he is urged to deposit additional collateral or repay a part of the loan. Failure to do so usually triggers the automated selling of either a part or the entire collateral, intended to cover the amount of the loan that is at risk.
Loan and additional perks may sound weird, but the truth is that some companies have tried to ease the lending process for their clients. Nexo, for example, has the NEXO token, which offers its holders benefits such as a source of a passive income in the form of dividends, (the tokens redistribute 30% of the company’s profits), discounted interest rates, can be used as collateral on the platform and many others. Other crypto lending service providers like CoinLoan and Salt Lending also have their tokens, called CLT and SALT, respectively.
Bear in mind that, in a bid to provide more freedom to their users, some crypto lending service providers have teamed up with companies like MasterCard to provide their own branded credit cards. If you prefer to have the loan transferred into a separate account with its own credit card, then this is a good thing to consider when choosing a crypto credit provider.