Guide to DeFi Loans

Key Points

• In the event of volatility, users can use asset management tools such as DeFi Saver to ensure vaults are sufficiently collateralized.
• MakerDAO vaults can be easily tracked because they are integrated into other asset management tools.
• Decentralized Governance: a community of MKR token holders governs the Maker Protocol

Interest rate: Variable

Loan types: Principal plus interest, flash loans.

Supported collateralized assets: BTC, ETH, MATIC, etc.

Supported borrower assets: DAI

Loan to value range: 54 to 99%

Frequently Asked Questions (FAQs)

What do people use crypto loans for?

When borrowers gain access to crypto loans, they use them for several purposes such as arbitrage trading, purchasing more crypto, and diversifying their investment portfolio by investing in crypto mortgages.

Why do crypto borrowing interest rates change?

Interest rates often change in response to the utilization of underlying capital pools. Assuming a vast number of tokens have been earmarked for borrowing, the lending and borrowing rate in relation to the crypto will be quite low. The interest rate becomes popular when the pool gains popularity.

Are there minimum or maximum loan amounts for crypto?

Yes, each lending and borrowing platform has its own minimum and maximum borrowing amount. While minimum loan amounts may be as low as $1,000, maximum amounts may be as high as millions.

• Lenders earn interest in the same token that was offered to the liquidity pool.

• Loans can be insured using Nexus Mutual.

Interest rate: Variable

Loan types: Principal plus interest.

Supported collateralized assets: WBTC, ETH, DAI, etc.

Supported borrower assets: WBTC, ETH, YFI, etc.

Loan to value range: 65 to 85%

MakerDAO

With MakerDAO, borrowers and lenders combine to generate DAI, a stablecoin that is pegged to the U.S. dollar. The protocols network is built on the Ethereum network and offers users flexible interest rates that range from 0% to 8.75%.

Below are some reasons why lenders choose MakeDAO.

• In the event of volatility, users can use asset management tools such as DeFi Saver to ensure vaults are sufficiently collateralized.
• MakerDAO vaults can be easily tracked because they are integrated into other asset management tools.
• Decentralized Governance: a community of MKR token holders governs the Maker Protocol

Interest rate: Variable

Loan types: Principal plus interest, flash loans.

Supported collateralized assets: BTC, ETH, MATIC, etc.

Supported borrower assets: DAI

Loan to value range: 54 to 99%

Frequently Asked Questions (FAQs)

What do people use crypto loans for?

When borrowers gain access to crypto loans, they use them for several purposes such as arbitrage trading, purchasing more crypto, and diversifying their investment portfolio by investing in crypto mortgages.

Why do crypto borrowing interest rates change?

Interest rates often change in response to the utilization of underlying capital pools. Assuming a vast number of tokens have been earmarked for borrowing, the lending and borrowing rate in relation to the crypto will be quite low. The interest rate becomes popular when the pool gains popularity.

Are there minimum or maximum loan amounts for crypto?

Yes, each lending and borrowing platform has its own minimum and maximum borrowing amount. While minimum loan amounts may be as low as $1,000, maximum amounts may be as high as millions.

• Lenders earn interest in the same token that was offered to the liquidity pool.

• Loans can be insured using Nexus Mutual.

Interest rate: Variable

Loan types: Principal plus interest.

Supported collateralized assets: WBTC, ETH, DAI, etc.

Supported borrower assets: WBTC, ETH, YFI, etc.

Loan to value range: 65 to 85%

MakerDAO

With MakerDAO, borrowers and lenders combine to generate DAI, a stablecoin that is pegged to the U.S. dollar. The protocols network is built on the Ethereum network and offers users flexible interest rates that range from 0% to 8.75%.

Below are some reasons why lenders choose MakeDAO.

• In the event of volatility, users can use asset management tools such as DeFi Saver to ensure vaults are sufficiently collateralized.
• MakerDAO vaults can be easily tracked because they are integrated into other asset management tools.
• Decentralized Governance: a community of MKR token holders governs the Maker Protocol

Interest rate: Variable

Loan types: Principal plus interest, flash loans.

Supported collateralized assets: BTC, ETH, MATIC, etc.

Supported borrower assets: DAI

Loan to value range: 54 to 99%

Frequently Asked Questions (FAQs)

What do people use crypto loans for?

When borrowers gain access to crypto loans, they use them for several purposes such as arbitrage trading, purchasing more crypto, and diversifying their investment portfolio by investing in crypto mortgages.

Why do crypto borrowing interest rates change?

Interest rates often change in response to the utilization of underlying capital pools. Assuming a vast number of tokens have been earmarked for borrowing, the lending and borrowing rate in relation to the crypto will be quite low. The interest rate becomes popular when the pool gains popularity.

Are there minimum or maximum loan amounts for crypto?

Yes, each lending and borrowing platform has its own minimum and maximum borrowing amount. While minimum loan amounts may be as low as $1,000, maximum amounts may be as high as millions.

Borrowing can somewhat be flexible as Aave also offers flash loans.

• Aave offers a risk framework (A+ to D-) that displays the rating for various assets on the platform.

• Nexus Mutual offers loan insurance on Aave.

Interest rate: Fixed or variable

Loan types: Custom repayment schedules.

Supported collateralized assets: BTC, ETH, MKR, USDC, etc.

Supported borrower assets: WBTC, USDC, MKR, etc.

Loan to value range: 35 to 80%

Compound

Compound is another DeFi protocol with liquidity pools for different assets. When a user lends tokens, they go into the liquidity pools and are merged with other users’ tokens. Borrowers then assess the liquidity pools and later pay what was borrowed with interest rates.

Compound allows users to earn interest in the same token they provide to the lending pool. With interest rates being fixed or variable, earnings differ with tokens.

Below are some features of Compound:

• Lenders earn interest in the same token that was offered to the liquidity pool.

• Loans can be insured using Nexus Mutual.

Interest rate: Variable

Loan types: Principal plus interest.

Supported collateralized assets: WBTC, ETH, DAI, etc.

Supported borrower assets: WBTC, ETH, YFI, etc.

Loan to value range: 65 to 85%

MakerDAO

With MakerDAO, borrowers and lenders combine to generate DAI, a stablecoin that is pegged to the U.S. dollar. The protocols network is built on the Ethereum network and offers users flexible interest rates that range from 0% to 8.75%.

Below are some reasons why lenders choose MakeDAO.

• In the event of volatility, users can use asset management tools such as DeFi Saver to ensure vaults are sufficiently collateralized.
• MakerDAO vaults can be easily tracked because they are integrated into other asset management tools.
• Decentralized Governance: a community of MKR token holders governs the Maker Protocol

Interest rate: Variable

Loan types: Principal plus interest, flash loans.

Supported collateralized assets: BTC, ETH, MATIC, etc.

Supported borrower assets: DAI

Loan to value range: 54 to 99%

Frequently Asked Questions (FAQs)

What do people use crypto loans for?

When borrowers gain access to crypto loans, they use them for several purposes such as arbitrage trading, purchasing more crypto, and diversifying their investment portfolio by investing in crypto mortgages.

Why do crypto borrowing interest rates change?

Interest rates often change in response to the utilization of underlying capital pools. Assuming a vast number of tokens have been earmarked for borrowing, the lending and borrowing rate in relation to the crypto will be quite low. The interest rate becomes popular when the pool gains popularity.

Are there minimum or maximum loan amounts for crypto?

Yes, each lending and borrowing platform has its own minimum and maximum borrowing amount. While minimum loan amounts may be as low as $1,000, maximum amounts may be as high as millions.

Flexible interest options as the rates can be fixed or floating.

• Borrowing can somewhat be flexible as Aave also offers flash loans.

• Aave offers a risk framework (A+ to D-) that displays the rating for various assets on the platform.

• Nexus Mutual offers loan insurance on Aave.

Interest rate: Fixed or variable

Loan types: Custom repayment schedules.

Supported collateralized assets: BTC, ETH, MKR, USDC, etc.

Supported borrower assets: WBTC, USDC, MKR, etc.

Loan to value range: 35 to 80%

Compound

Compound is another DeFi protocol with liquidity pools for different assets. When a user lends tokens, they go into the liquidity pools and are merged with other users’ tokens. Borrowers then assess the liquidity pools and later pay what was borrowed with interest rates.

Compound allows users to earn interest in the same token they provide to the lending pool. With interest rates being fixed or variable, earnings differ with tokens.

Below are some features of Compound:

• Lenders earn interest in the same token that was offered to the liquidity pool.

• Loans can be insured using Nexus Mutual.

Interest rate: Variable

Loan types: Principal plus interest.

Supported collateralized assets: WBTC, ETH, DAI, etc.

Supported borrower assets: WBTC, ETH, YFI, etc.

Loan to value range: 65 to 85%

MakerDAO

With MakerDAO, borrowers and lenders combine to generate DAI, a stablecoin that is pegged to the U.S. dollar. The protocols network is built on the Ethereum network and offers users flexible interest rates that range from 0% to 8.75%.

Below are some reasons why lenders choose MakeDAO.

• In the event of volatility, users can use asset management tools such as DeFi Saver to ensure vaults are sufficiently collateralized.
• MakerDAO vaults can be easily tracked because they are integrated into other asset management tools.
• Decentralized Governance: a community of MKR token holders governs the Maker Protocol

Interest rate: Variable

Loan types: Principal plus interest, flash loans.

Supported collateralized assets: BTC, ETH, MATIC, etc.

Supported borrower assets: DAI

Loan to value range: 54 to 99%

Frequently Asked Questions (FAQs)

What do people use crypto loans for?

When borrowers gain access to crypto loans, they use them for several purposes such as arbitrage trading, purchasing more crypto, and diversifying their investment portfolio by investing in crypto mortgages.

Why do crypto borrowing interest rates change?

Interest rates often change in response to the utilization of underlying capital pools. Assuming a vast number of tokens have been earmarked for borrowing, the lending and borrowing rate in relation to the crypto will be quite low. The interest rate becomes popular when the pool gains popularity.

Are there minimum or maximum loan amounts for crypto?

Yes, each lending and borrowing platform has its own minimum and maximum borrowing amount. While minimum loan amounts may be as low as $1,000, maximum amounts may be as high as millions.

• Flexible interest options as the rates can be fixed or floating.

• Borrowing can somewhat be flexible as Aave also offers flash loans.

• Aave offers a risk framework (A+ to D-) that displays the rating for various assets on the platform.

• Nexus Mutual offers loan insurance on Aave.

Interest rate: Fixed or variable

Loan types: Custom repayment schedules.

Supported collateralized assets: BTC, ETH, MKR, USDC, etc.

Supported borrower assets: WBTC, USDC, MKR, etc.

Loan to value range: 35 to 80%

Compound

Compound is another DeFi protocol with liquidity pools for different assets. When a user lends tokens, they go into the liquidity pools and are merged with other users’ tokens. Borrowers then assess the liquidity pools and later pay what was borrowed with interest rates.

Compound allows users to earn interest in the same token they provide to the lending pool. With interest rates being fixed or variable, earnings differ with tokens.

Below are some features of Compound:

• Lenders earn interest in the same token that was offered to the liquidity pool.

• Loans can be insured using Nexus Mutual.

Interest rate: Variable

Loan types: Principal plus interest.

Supported collateralized assets: WBTC, ETH, DAI, etc.

Supported borrower assets: WBTC, ETH, YFI, etc.

Loan to value range: 65 to 85%

MakerDAO

With MakerDAO, borrowers and lenders combine to generate DAI, a stablecoin that is pegged to the U.S. dollar. The protocols network is built on the Ethereum network and offers users flexible interest rates that range from 0% to 8.75%.

Below are some reasons why lenders choose MakeDAO.

• In the event of volatility, users can use asset management tools such as DeFi Saver to ensure vaults are sufficiently collateralized.
• MakerDAO vaults can be easily tracked because they are integrated into other asset management tools.
• Decentralized Governance: a community of MKR token holders governs the Maker Protocol

Interest rate: Variable

Loan types: Principal plus interest, flash loans.

Supported collateralized assets: BTC, ETH, MATIC, etc.

Supported borrower assets: DAI

Loan to value range: 54 to 99%

Frequently Asked Questions (FAQs)

What do people use crypto loans for?

When borrowers gain access to crypto loans, they use them for several purposes such as arbitrage trading, purchasing more crypto, and diversifying their investment portfolio by investing in crypto mortgages.

Why do crypto borrowing interest rates change?

Interest rates often change in response to the utilization of underlying capital pools. Assuming a vast number of tokens have been earmarked for borrowing, the lending and borrowing rate in relation to the crypto will be quite low. The interest rate becomes popular when the pool gains popularity.

Are there minimum or maximum loan amounts for crypto?

Yes, each lending and borrowing platform has its own minimum and maximum borrowing amount. While minimum loan amounts may be as low as $1,000, maximum amounts may be as high as millions.

• Flexible interest options as the rates can be fixed or floating.

• Borrowing can somewhat be flexible as Aave also offers flash loans.

• Aave offers a risk framework (A+ to D-) that displays the rating for various assets on the platform.

• Nexus Mutual offers loan insurance on Aave.

Interest rate: Fixed or variable

Loan types: Custom repayment schedules.

Supported collateralized assets: BTC, ETH, MKR, USDC, etc.

Supported borrower assets: WBTC, USDC, MKR, etc.

Loan to value range: 35 to 80%

Compound

Compound is another DeFi protocol with liquidity pools for different assets. When a user lends tokens, they go into the liquidity pools and are merged with other users’ tokens. Borrowers then assess the liquidity pools and later pay what was borrowed with interest rates.

Compound allows users to earn interest in the same token they provide to the lending pool. With interest rates being fixed or variable, earnings differ with tokens.

Below are some features of Compound:

• Lenders earn interest in the same token that was offered to the liquidity pool.

• Loans can be insured using Nexus Mutual.

Interest rate: Variable

Loan types: Principal plus interest.

Supported collateralized assets: WBTC, ETH, DAI, etc.

Supported borrower assets: WBTC, ETH, YFI, etc.

Loan to value range: 65 to 85%

MakerDAO

With MakerDAO, borrowers and lenders combine to generate DAI, a stablecoin that is pegged to the U.S. dollar. The protocols network is built on the Ethereum network and offers users flexible interest rates that range from 0% to 8.75%.

Below are some reasons why lenders choose MakeDAO.

• In the event of volatility, users can use asset management tools such as DeFi Saver to ensure vaults are sufficiently collateralized.
• MakerDAO vaults can be easily tracked because they are integrated into other asset management tools.
• Decentralized Governance: a community of MKR token holders governs the Maker Protocol

Interest rate: Variable

Loan types: Principal plus interest, flash loans.

Supported collateralized assets: BTC, ETH, MATIC, etc.

Supported borrower assets: DAI

Loan to value range: 54 to 99%

Frequently Asked Questions (FAQs)

What do people use crypto loans for?

When borrowers gain access to crypto loans, they use them for several purposes such as arbitrage trading, purchasing more crypto, and diversifying their investment portfolio by investing in crypto mortgages.

Why do crypto borrowing interest rates change?

Interest rates often change in response to the utilization of underlying capital pools. Assuming a vast number of tokens have been earmarked for borrowing, the lending and borrowing rate in relation to the crypto will be quite low. The interest rate becomes popular when the pool gains popularity.

Are there minimum or maximum loan amounts for crypto?

Yes, each lending and borrowing platform has its own minimum and maximum borrowing amount. While minimum loan amounts may be as low as $1,000, maximum amounts may be as high as millions.

• Margin calls: When a borrower’s collateral assets decline rapidly, there is a tendency for the loan to reach a liquidation threshold. This is why borrowers are also required to deposit more collateral.
• Cyber attacks: The crypto industry can be prone to security breaches and this can be a major setback to borrowers whose crypto custody has been temporarily transferred to the platform. Borrowers face the risk of losing their tokens should a hack occur.

Top DeFi Lending and Borrowing Protocols

There are a lot of DeFi lending and borrowing platforms in the cryptocurrency ecosystem. Some of them include Aave, MakerDAO, Compound, etc. 

Aave

Aave is an open-source decentralized protocol that offers users access to liquidity pools where they can lend their tokens to others in return for interest. This platform offers varying interest rates for different yields and interest rates vary for each token.

The interest rates paid to lenders often range around 1% and 3%. While interest rates change regularly, some tokens are associated with much higher yields.

Some reasons to choose Aave include:

• Flexible interest options as the rates can be fixed or floating.

• Borrowing can somewhat be flexible as Aave also offers flash loans.

• Aave offers a risk framework (A+ to D-) that displays the rating for various assets on the platform.

• Nexus Mutual offers loan insurance on Aave.

Interest rate: Fixed or variable

Loan types: Custom repayment schedules.

Supported collateralized assets: BTC, ETH, MKR, USDC, etc.

Supported borrower assets: WBTC, USDC, MKR, etc.

Loan to value range: 35 to 80%

Compound

Compound is another DeFi protocol with liquidity pools for different assets. When a user lends tokens, they go into the liquidity pools and are merged with other users’ tokens. Borrowers then assess the liquidity pools and later pay what was borrowed with interest rates.

Compound allows users to earn interest in the same token they provide to the lending pool. With interest rates being fixed or variable, earnings differ with tokens.

Below are some features of Compound:

• Lenders earn interest in the same token that was offered to the liquidity pool.

• Loans can be insured using Nexus Mutual.

Interest rate: Variable

Loan types: Principal plus interest.

Supported collateralized assets: WBTC, ETH, DAI, etc.

Supported borrower assets: WBTC, ETH, YFI, etc.

Loan to value range: 65 to 85%

MakerDAO

With MakerDAO, borrowers and lenders combine to generate DAI, a stablecoin that is pegged to the U.S. dollar. The protocols network is built on the Ethereum network and offers users flexible interest rates that range from 0% to 8.75%.

Below are some reasons why lenders choose MakeDAO.

• In the event of volatility, users can use asset management tools such as DeFi Saver to ensure vaults are sufficiently collateralized.
• MakerDAO vaults can be easily tracked because they are integrated into other asset management tools.
• Decentralized Governance: a community of MKR token holders governs the Maker Protocol

Interest rate: Variable

Loan types: Principal plus interest, flash loans.

Supported collateralized assets: BTC, ETH, MATIC, etc.

Supported borrower assets: DAI

Loan to value range: 54 to 99%

Frequently Asked Questions (FAQs)

What do people use crypto loans for?

When borrowers gain access to crypto loans, they use them for several purposes such as arbitrage trading, purchasing more crypto, and diversifying their investment portfolio by investing in crypto mortgages.

Why do crypto borrowing interest rates change?

Interest rates often change in response to the utilization of underlying capital pools. Assuming a vast number of tokens have been earmarked for borrowing, the lending and borrowing rate in relation to the crypto will be quite low. The interest rate becomes popular when the pool gains popularity.

Are there minimum or maximum loan amounts for crypto?

Yes, each lending and borrowing platform has its own minimum and maximum borrowing amount. While minimum loan amounts may be as low as $1,000, maximum amounts may be as high as millions.

• Retention of crypto assets: When borrowers gain access to crypto loans, they necessarily do not have to sell their crypto. They can get back their coins as soon as the loan is repaid.

• Varying loan terms: Crypto loan terms vary between seven days to 12 months.

• Diverse use case: Crypto loans have various use cases. They can be used to purchase more crypto or acquire real estate properties.

Risks of Crypto Loans

While crypto loans have so many advantages, certain risks apply. They include

• Margin calls: When a borrower’s collateral assets decline rapidly, there is a tendency for the loan to reach a liquidation threshold. This is why borrowers are also required to deposit more collateral.
• Cyber attacks: The crypto industry can be prone to security breaches and this can be a major setback to borrowers whose crypto custody has been temporarily transferred to the platform. Borrowers face the risk of losing their tokens should a hack occur.

Top DeFi Lending and Borrowing Protocols

There are a lot of DeFi lending and borrowing platforms in the cryptocurrency ecosystem. Some of them include Aave, MakerDAO, Compound, etc. 

Aave

Aave is an open-source decentralized protocol that offers users access to liquidity pools where they can lend their tokens to others in return for interest. This platform offers varying interest rates for different yields and interest rates vary for each token.

The interest rates paid to lenders often range around 1% and 3%. While interest rates change regularly, some tokens are associated with much higher yields.

Some reasons to choose Aave include:

• Flexible interest options as the rates can be fixed or floating.

• Borrowing can somewhat be flexible as Aave also offers flash loans.

• Aave offers a risk framework (A+ to D-) that displays the rating for various assets on the platform.

• Nexus Mutual offers loan insurance on Aave.

Interest rate: Fixed or variable

Loan types: Custom repayment schedules.

Supported collateralized assets: BTC, ETH, MKR, USDC, etc.

Supported borrower assets: WBTC, USDC, MKR, etc.

Loan to value range: 35 to 80%

Compound

Compound is another DeFi protocol with liquidity pools for different assets. When a user lends tokens, they go into the liquidity pools and are merged with other users’ tokens. Borrowers then assess the liquidity pools and later pay what was borrowed with interest rates.

Compound allows users to earn interest in the same token they provide to the lending pool. With interest rates being fixed or variable, earnings differ with tokens.

Below are some features of Compound:

• Lenders earn interest in the same token that was offered to the liquidity pool.

• Loans can be insured using Nexus Mutual.

Interest rate: Variable

Loan types: Principal plus interest.

Supported collateralized assets: WBTC, ETH, DAI, etc.

Supported borrower assets: WBTC, ETH, YFI, etc.

Loan to value range: 65 to 85%

MakerDAO

With MakerDAO, borrowers and lenders combine to generate DAI, a stablecoin that is pegged to the U.S. dollar. The protocols network is built on the Ethereum network and offers users flexible interest rates that range from 0% to 8.75%.

Below are some reasons why lenders choose MakeDAO.

• In the event of volatility, users can use asset management tools such as DeFi Saver to ensure vaults are sufficiently collateralized.
• MakerDAO vaults can be easily tracked because they are integrated into other asset management tools.
• Decentralized Governance: a community of MKR token holders governs the Maker Protocol

Interest rate: Variable

Loan types: Principal plus interest, flash loans.

Supported collateralized assets: BTC, ETH, MATIC, etc.

Supported borrower assets: DAI

Loan to value range: 54 to 99%

Frequently Asked Questions (FAQs)

What do people use crypto loans for?

When borrowers gain access to crypto loans, they use them for several purposes such as arbitrage trading, purchasing more crypto, and diversifying their investment portfolio by investing in crypto mortgages.

Why do crypto borrowing interest rates change?

Interest rates often change in response to the utilization of underlying capital pools. Assuming a vast number of tokens have been earmarked for borrowing, the lending and borrowing rate in relation to the crypto will be quite low. The interest rate becomes popular when the pool gains popularity.

Are there minimum or maximum loan amounts for crypto?

Yes, each lending and borrowing platform has its own minimum and maximum borrowing amount. While minimum loan amounts may be as low as $1,000, maximum amounts may be as high as millions.

• Rapid origination: Unlike traditional finance, crypto loans are swift and accessible by all. There are rarely credit checks or credit histories. DeFi lenders often offer flexible terms and low fees compared to what is obtainable in traditional finance.

• More credit access: Borrowers do not need to have traditional bank accounts to have access to crypto loans. Since one-third of the world’s population remains unbanked, DeFi makes it easier for the unbanked to have access to crypto loans.

• Retention of crypto assets: When borrowers gain access to crypto loans, they necessarily do not have to sell their crypto. They can get back their coins as soon as the loan is repaid.

• Varying loan terms: Crypto loan terms vary between seven days to 12 months.

• Diverse use case: Crypto loans have various use cases. They can be used to purchase more crypto or acquire real estate properties.

Risks of Crypto Loans

While crypto loans have so many advantages, certain risks apply. They include

• Margin calls: When a borrower’s collateral assets decline rapidly, there is a tendency for the loan to reach a liquidation threshold. This is why borrowers are also required to deposit more collateral.
• Cyber attacks: The crypto industry can be prone to security breaches and this can be a major setback to borrowers whose crypto custody has been temporarily transferred to the platform. Borrowers face the risk of losing their tokens should a hack occur.

Top DeFi Lending and Borrowing Protocols

There are a lot of DeFi lending and borrowing platforms in the cryptocurrency ecosystem. Some of them include Aave, MakerDAO, Compound, etc. 

Aave

Aave is an open-source decentralized protocol that offers users access to liquidity pools where they can lend their tokens to others in return for interest. This platform offers varying interest rates for different yields and interest rates vary for each token.

The interest rates paid to lenders often range around 1% and 3%. While interest rates change regularly, some tokens are associated with much higher yields.

Some reasons to choose Aave include:

• Flexible interest options as the rates can be fixed or floating.

• Borrowing can somewhat be flexible as Aave also offers flash loans.

• Aave offers a risk framework (A+ to D-) that displays the rating for various assets on the platform.

• Nexus Mutual offers loan insurance on Aave.

Interest rate: Fixed or variable

Loan types: Custom repayment schedules.

Supported collateralized assets: BTC, ETH, MKR, USDC, etc.

Supported borrower assets: WBTC, USDC, MKR, etc.

Loan to value range: 35 to 80%

Compound

Compound is another DeFi protocol with liquidity pools for different assets. When a user lends tokens, they go into the liquidity pools and are merged with other users’ tokens. Borrowers then assess the liquidity pools and later pay what was borrowed with interest rates.

Compound allows users to earn interest in the same token they provide to the lending pool. With interest rates being fixed or variable, earnings differ with tokens.

Below are some features of Compound:

• Lenders earn interest in the same token that was offered to the liquidity pool.

• Loans can be insured using Nexus Mutual.

Interest rate: Variable

Loan types: Principal plus interest.

Supported collateralized assets: WBTC, ETH, DAI, etc.

Supported borrower assets: WBTC, ETH, YFI, etc.

Loan to value range: 65 to 85%

MakerDAO

With MakerDAO, borrowers and lenders combine to generate DAI, a stablecoin that is pegged to the U.S. dollar. The protocols network is built on the Ethereum network and offers users flexible interest rates that range from 0% to 8.75%.

Below are some reasons why lenders choose MakeDAO.

• In the event of volatility, users can use asset management tools such as DeFi Saver to ensure vaults are sufficiently collateralized.
• MakerDAO vaults can be easily tracked because they are integrated into other asset management tools.
• Decentralized Governance: a community of MKR token holders governs the Maker Protocol

Interest rate: Variable

Loan types: Principal plus interest, flash loans.

Supported collateralized assets: BTC, ETH, MATIC, etc.

Supported borrower assets: DAI

Loan to value range: 54 to 99%

Frequently Asked Questions (FAQs)

What do people use crypto loans for?

When borrowers gain access to crypto loans, they use them for several purposes such as arbitrage trading, purchasing more crypto, and diversifying their investment portfolio by investing in crypto mortgages.

Why do crypto borrowing interest rates change?

Interest rates often change in response to the utilization of underlying capital pools. Assuming a vast number of tokens have been earmarked for borrowing, the lending and borrowing rate in relation to the crypto will be quite low. The interest rate becomes popular when the pool gains popularity.

Are there minimum or maximum loan amounts for crypto?

Yes, each lending and borrowing platform has its own minimum and maximum borrowing amount. While minimum loan amounts may be as low as $1,000, maximum amounts may be as high as millions.

• Rapid origination: Unlike traditional finance, crypto loans are swift and accessible by all. There are rarely credit checks or credit histories. DeFi lenders often offer flexible terms and low fees compared to what is obtainable in traditional finance.

• More credit access: Borrowers do not need to have traditional bank accounts to have access to crypto loans. Since one-third of the world’s population remains unbanked, DeFi makes it easier for the unbanked to have access to crypto loans.

• Retention of crypto assets: When borrowers gain access to crypto loans, they necessarily do not have to sell their crypto. They can get back their coins as soon as the loan is repaid.

• Varying loan terms: Crypto loan terms vary between seven days to 12 months.

• Diverse use case: Crypto loans have various use cases. They can be used to purchase more crypto or acquire real estate properties.

Risks of Crypto Loans

While crypto loans have so many advantages, certain risks apply. They include

• Margin calls: When a borrower’s collateral assets decline rapidly, there is a tendency for the loan to reach a liquidation threshold. This is why borrowers are also required to deposit more collateral.
• Cyber attacks: The crypto industry can be prone to security breaches and this can be a major setback to borrowers whose crypto custody has been temporarily transferred to the platform. Borrowers face the risk of losing their tokens should a hack occur.

Top DeFi Lending and Borrowing Protocols

There are a lot of DeFi lending and borrowing platforms in the cryptocurrency ecosystem. Some of them include Aave, MakerDAO, Compound, etc. 

Aave

Aave is an open-source decentralized protocol that offers users access to liquidity pools where they can lend their tokens to others in return for interest. This platform offers varying interest rates for different yields and interest rates vary for each token.

The interest rates paid to lenders often range around 1% and 3%. While interest rates change regularly, some tokens are associated with much higher yields.

Some reasons to choose Aave include:

• Flexible interest options as the rates can be fixed or floating.

• Borrowing can somewhat be flexible as Aave also offers flash loans.

• Aave offers a risk framework (A+ to D-) that displays the rating for various assets on the platform.

• Nexus Mutual offers loan insurance on Aave.

Interest rate: Fixed or variable

Loan types: Custom repayment schedules.

Supported collateralized assets: BTC, ETH, MKR, USDC, etc.

Supported borrower assets: WBTC, USDC, MKR, etc.

Loan to value range: 35 to 80%

Compound

Compound is another DeFi protocol with liquidity pools for different assets. When a user lends tokens, they go into the liquidity pools and are merged with other users’ tokens. Borrowers then assess the liquidity pools and later pay what was borrowed with interest rates.

Compound allows users to earn interest in the same token they provide to the lending pool. With interest rates being fixed or variable, earnings differ with tokens.

Below are some features of Compound:

• Lenders earn interest in the same token that was offered to the liquidity pool.

• Loans can be insured using Nexus Mutual.

Interest rate: Variable

Loan types: Principal plus interest.

Supported collateralized assets: WBTC, ETH, DAI, etc.

Supported borrower assets: WBTC, ETH, YFI, etc.

Loan to value range: 65 to 85%

MakerDAO

With MakerDAO, borrowers and lenders combine to generate DAI, a stablecoin that is pegged to the U.S. dollar. The protocols network is built on the Ethereum network and offers users flexible interest rates that range from 0% to 8.75%.

Below are some reasons why lenders choose MakeDAO.

• In the event of volatility, users can use asset management tools such as DeFi Saver to ensure vaults are sufficiently collateralized.
• MakerDAO vaults can be easily tracked because they are integrated into other asset management tools.
• Decentralized Governance: a community of MKR token holders governs the Maker Protocol

Interest rate: Variable

Loan types: Principal plus interest, flash loans.

Supported collateralized assets: BTC, ETH, MATIC, etc.

Supported borrower assets: DAI

Loan to value range: 54 to 99%

Frequently Asked Questions (FAQs)

What do people use crypto loans for?

When borrowers gain access to crypto loans, they use them for several purposes such as arbitrage trading, purchasing more crypto, and diversifying their investment portfolio by investing in crypto mortgages.

Why do crypto borrowing interest rates change?

Interest rates often change in response to the utilization of underlying capital pools. Assuming a vast number of tokens have been earmarked for borrowing, the lending and borrowing rate in relation to the crypto will be quite low. The interest rate becomes popular when the pool gains popularity.

Are there minimum or maximum loan amounts for crypto?

Yes, each lending and borrowing platform has its own minimum and maximum borrowing amount. While minimum loan amounts may be as low as $1,000, maximum amounts may be as high as millions.

• Eligible collateral

To access crypto loans, it is essential to set aside a specific number of tokens that will serve as a form of collateral. The collateral is what determines the amount of coins a borrower can access. Unlike traditional banking where the credit score of borrowers is considered, DeFi uses the collateral deposited to determine the amount of loan the borrower gets. This entire process makes underwriting quick and simple.

Benefits and Risks of Crypto Loans.

Crypto loans come with their own risks and benefits, indicating that while DeFi has some unique advantages that help it thrive in the crypto industry, it may just not be best proved by crypto lending.

Benefits of Crypto Loans

The benefits of crypto loans are far-reaching and include:

• Rapid origination: Unlike traditional finance, crypto loans are swift and accessible by all. There are rarely credit checks or credit histories. DeFi lenders often offer flexible terms and low fees compared to what is obtainable in traditional finance.

• More credit access: Borrowers do not need to have traditional bank accounts to have access to crypto loans. Since one-third of the world’s population remains unbanked, DeFi makes it easier for the unbanked to have access to crypto loans.

• Retention of crypto assets: When borrowers gain access to crypto loans, they necessarily do not have to sell their crypto. They can get back their coins as soon as the loan is repaid.

• Varying loan terms: Crypto loan terms vary between seven days to 12 months.

• Diverse use case: Crypto loans have various use cases. They can be used to purchase more crypto or acquire real estate properties.

Risks of Crypto Loans

While crypto loans have so many advantages, certain risks apply. They include

• Margin calls: When a borrower’s collateral assets decline rapidly, there is a tendency for the loan to reach a liquidation threshold. This is why borrowers are also required to deposit more collateral.
• Cyber attacks: The crypto industry can be prone to security breaches and this can be a major setback to borrowers whose crypto custody has been temporarily transferred to the platform. Borrowers face the risk of losing their tokens should a hack occur.

Top DeFi Lending and Borrowing Protocols

There are a lot of DeFi lending and borrowing platforms in the cryptocurrency ecosystem. Some of them include Aave, MakerDAO, Compound, etc. 

Aave

Aave is an open-source decentralized protocol that offers users access to liquidity pools where they can lend their tokens to others in return for interest. This platform offers varying interest rates for different yields and interest rates vary for each token.

The interest rates paid to lenders often range around 1% and 3%. While interest rates change regularly, some tokens are associated with much higher yields.

Some reasons to choose Aave include:

• Flexible interest options as the rates can be fixed or floating.

• Borrowing can somewhat be flexible as Aave also offers flash loans.

• Aave offers a risk framework (A+ to D-) that displays the rating for various assets on the platform.

• Nexus Mutual offers loan insurance on Aave.

Interest rate: Fixed or variable

Loan types: Custom repayment schedules.

Supported collateralized assets: BTC, ETH, MKR, USDC, etc.

Supported borrower assets: WBTC, USDC, MKR, etc.

Loan to value range: 35 to 80%

Compound

Compound is another DeFi protocol with liquidity pools for different assets. When a user lends tokens, they go into the liquidity pools and are merged with other users’ tokens. Borrowers then assess the liquidity pools and later pay what was borrowed with interest rates.

Compound allows users to earn interest in the same token they provide to the lending pool. With interest rates being fixed or variable, earnings differ with tokens.

Below are some features of Compound:

• Lenders earn interest in the same token that was offered to the liquidity pool.

• Loans can be insured using Nexus Mutual.

Interest rate: Variable

Loan types: Principal plus interest.

Supported collateralized assets: WBTC, ETH, DAI, etc.

Supported borrower assets: WBTC, ETH, YFI, etc.

Loan to value range: 65 to 85%

MakerDAO

With MakerDAO, borrowers and lenders combine to generate DAI, a stablecoin that is pegged to the U.S. dollar. The protocols network is built on the Ethereum network and offers users flexible interest rates that range from 0% to 8.75%.

Below are some reasons why lenders choose MakeDAO.

• In the event of volatility, users can use asset management tools such as DeFi Saver to ensure vaults are sufficiently collateralized.
• MakerDAO vaults can be easily tracked because they are integrated into other asset management tools.
• Decentralized Governance: a community of MKR token holders governs the Maker Protocol

Interest rate: Variable

Loan types: Principal plus interest, flash loans.

Supported collateralized assets: BTC, ETH, MATIC, etc.

Supported borrower assets: DAI

Loan to value range: 54 to 99%

Frequently Asked Questions (FAQs)

What do people use crypto loans for?

When borrowers gain access to crypto loans, they use them for several purposes such as arbitrage trading, purchasing more crypto, and diversifying their investment portfolio by investing in crypto mortgages.

Why do crypto borrowing interest rates change?

Interest rates often change in response to the utilization of underlying capital pools. Assuming a vast number of tokens have been earmarked for borrowing, the lending and borrowing rate in relation to the crypto will be quite low. The interest rate becomes popular when the pool gains popularity.

Are there minimum or maximum loan amounts for crypto?

Yes, each lending and borrowing platform has its own minimum and maximum borrowing amount. While minimum loan amounts may be as low as $1,000, maximum amounts may be as high as millions.

• Buying more crypto: When users borrow against their crypto, they get more cash that can be used to buy more crypto assets. This way, investors can “buy the dip” without using their personal funds to add to their crypto portfolio. Even if the crypto market suddenly falls, the coins that investors have added to their portfolios will be used to meet margin calls in the lending platform.

• Crypto real estate mortgage: Investors can use borrowed crypto assets to acquire real estate or other rental properties, allowing them to retain their crypto assets and also enjoy the proceeds of their real estate investment. This also allows the borrower to maintain diverse investment portfolios such as real estate and crypto.

What are the Requirements to Access DeFi Loans?

Besides having some tokens which can be used as collateral, there are other requirements borrowers must meet to access DeFi Loans. These requirements are briefly explained below.

• Eligible collateral

To access crypto loans, it is essential to set aside a specific number of tokens that will serve as a form of collateral. The collateral is what determines the amount of coins a borrower can access. Unlike traditional banking where the credit score of borrowers is considered, DeFi uses the collateral deposited to determine the amount of loan the borrower gets. This entire process makes underwriting quick and simple.

Benefits and Risks of Crypto Loans.

Crypto loans come with their own risks and benefits, indicating that while DeFi has some unique advantages that help it thrive in the crypto industry, it may just not be best proved by crypto lending.

Benefits of Crypto Loans

The benefits of crypto loans are far-reaching and include:

• Rapid origination: Unlike traditional finance, crypto loans are swift and accessible by all. There are rarely credit checks or credit histories. DeFi lenders often offer flexible terms and low fees compared to what is obtainable in traditional finance.

• More credit access: Borrowers do not need to have traditional bank accounts to have access to crypto loans. Since one-third of the world’s population remains unbanked, DeFi makes it easier for the unbanked to have access to crypto loans.

• Retention of crypto assets: When borrowers gain access to crypto loans, they necessarily do not have to sell their crypto. They can get back their coins as soon as the loan is repaid.

• Varying loan terms: Crypto loan terms vary between seven days to 12 months.

• Diverse use case: Crypto loans have various use cases. They can be used to purchase more crypto or acquire real estate properties.

Risks of Crypto Loans

While crypto loans have so many advantages, certain risks apply. They include

• Margin calls: When a borrower’s collateral assets decline rapidly, there is a tendency for the loan to reach a liquidation threshold. This is why borrowers are also required to deposit more collateral.
• Cyber attacks: The crypto industry can be prone to security breaches and this can be a major setback to borrowers whose crypto custody has been temporarily transferred to the platform. Borrowers face the risk of losing their tokens should a hack occur.

Top DeFi Lending and Borrowing Protocols

There are a lot of DeFi lending and borrowing platforms in the cryptocurrency ecosystem. Some of them include Aave, MakerDAO, Compound, etc. 

Aave

Aave is an open-source decentralized protocol that offers users access to liquidity pools where they can lend their tokens to others in return for interest. This platform offers varying interest rates for different yields and interest rates vary for each token.

The interest rates paid to lenders often range around 1% and 3%. While interest rates change regularly, some tokens are associated with much higher yields.

Some reasons to choose Aave include:

• Flexible interest options as the rates can be fixed or floating.

• Borrowing can somewhat be flexible as Aave also offers flash loans.

• Aave offers a risk framework (A+ to D-) that displays the rating for various assets on the platform.

• Nexus Mutual offers loan insurance on Aave.

Interest rate: Fixed or variable

Loan types: Custom repayment schedules.

Supported collateralized assets: BTC, ETH, MKR, USDC, etc.

Supported borrower assets: WBTC, USDC, MKR, etc.

Loan to value range: 35 to 80%

Compound

Compound is another DeFi protocol with liquidity pools for different assets. When a user lends tokens, they go into the liquidity pools and are merged with other users’ tokens. Borrowers then assess the liquidity pools and later pay what was borrowed with interest rates.

Compound allows users to earn interest in the same token they provide to the lending pool. With interest rates being fixed or variable, earnings differ with tokens.

Below are some features of Compound:

• Lenders earn interest in the same token that was offered to the liquidity pool.

• Loans can be insured using Nexus Mutual.

Interest rate: Variable

Loan types: Principal plus interest.

Supported collateralized assets: WBTC, ETH, DAI, etc.

Supported borrower assets: WBTC, ETH, YFI, etc.

Loan to value range: 65 to 85%

MakerDAO

With MakerDAO, borrowers and lenders combine to generate DAI, a stablecoin that is pegged to the U.S. dollar. The protocols network is built on the Ethereum network and offers users flexible interest rates that range from 0% to 8.75%.

Below are some reasons why lenders choose MakeDAO.

• In the event of volatility, users can use asset management tools such as DeFi Saver to ensure vaults are sufficiently collateralized.
• MakerDAO vaults can be easily tracked because they are integrated into other asset management tools.
• Decentralized Governance: a community of MKR token holders governs the Maker Protocol

Interest rate: Variable

Loan types: Principal plus interest, flash loans.

Supported collateralized assets: BTC, ETH, MATIC, etc.

Supported borrower assets: DAI

Loan to value range: 54 to 99%

Frequently Asked Questions (FAQs)

What do people use crypto loans for?

When borrowers gain access to crypto loans, they use them for several purposes such as arbitrage trading, purchasing more crypto, and diversifying their investment portfolio by investing in crypto mortgages.

Why do crypto borrowing interest rates change?

Interest rates often change in response to the utilization of underlying capital pools. Assuming a vast number of tokens have been earmarked for borrowing, the lending and borrowing rate in relation to the crypto will be quite low. The interest rate becomes popular when the pool gains popularity.

Are there minimum or maximum loan amounts for crypto?

Yes, each lending and borrowing platform has its own minimum and maximum borrowing amount. While minimum loan amounts may be as low as $1,000, maximum amounts may be as high as millions.

• Buying more crypto: When users borrow against their crypto, they get more cash that can be used to buy more crypto assets. This way, investors can “buy the dip” without using their personal funds to add to their crypto portfolio. Even if the crypto market suddenly falls, the coins that investors have added to their portfolios will be used to meet margin calls in the lending platform.

• Crypto real estate mortgage: Investors can use borrowed crypto assets to acquire real estate or other rental properties, allowing them to retain their crypto assets and also enjoy the proceeds of their real estate investment. This also allows the borrower to maintain diverse investment portfolios such as real estate and crypto.

What are the Requirements to Access DeFi Loans?

Besides having some tokens which can be used as collateral, there are other requirements borrowers must meet to access DeFi Loans. These requirements are briefly explained below.

• Eligible collateral

To access crypto loans, it is essential to set aside a specific number of tokens that will serve as a form of collateral. The collateral is what determines the amount of coins a borrower can access. Unlike traditional banking where the credit score of borrowers is considered, DeFi uses the collateral deposited to determine the amount of loan the borrower gets. This entire process makes underwriting quick and simple.

Benefits and Risks of Crypto Loans.

Crypto loans come with their own risks and benefits, indicating that while DeFi has some unique advantages that help it thrive in the crypto industry, it may just not be best proved by crypto lending.

Benefits of Crypto Loans

The benefits of crypto loans are far-reaching and include:

• Rapid origination: Unlike traditional finance, crypto loans are swift and accessible by all. There are rarely credit checks or credit histories. DeFi lenders often offer flexible terms and low fees compared to what is obtainable in traditional finance.

• More credit access: Borrowers do not need to have traditional bank accounts to have access to crypto loans. Since one-third of the world’s population remains unbanked, DeFi makes it easier for the unbanked to have access to crypto loans.

• Retention of crypto assets: When borrowers gain access to crypto loans, they necessarily do not have to sell their crypto. They can get back their coins as soon as the loan is repaid.

• Varying loan terms: Crypto loan terms vary between seven days to 12 months.

• Diverse use case: Crypto loans have various use cases. They can be used to purchase more crypto or acquire real estate properties.

Risks of Crypto Loans

While crypto loans have so many advantages, certain risks apply. They include

• Margin calls: When a borrower’s collateral assets decline rapidly, there is a tendency for the loan to reach a liquidation threshold. This is why borrowers are also required to deposit more collateral.
• Cyber attacks: The crypto industry can be prone to security breaches and this can be a major setback to borrowers whose crypto custody has been temporarily transferred to the platform. Borrowers face the risk of losing their tokens should a hack occur.

Top DeFi Lending and Borrowing Protocols

There are a lot of DeFi lending and borrowing platforms in the cryptocurrency ecosystem. Some of them include Aave, MakerDAO, Compound, etc. 

Aave

Aave is an open-source decentralized protocol that offers users access to liquidity pools where they can lend their tokens to others in return for interest. This platform offers varying interest rates for different yields and interest rates vary for each token.

The interest rates paid to lenders often range around 1% and 3%. While interest rates change regularly, some tokens are associated with much higher yields.

Some reasons to choose Aave include:

• Flexible interest options as the rates can be fixed or floating.

• Borrowing can somewhat be flexible as Aave also offers flash loans.

• Aave offers a risk framework (A+ to D-) that displays the rating for various assets on the platform.

• Nexus Mutual offers loan insurance on Aave.

Interest rate: Fixed or variable

Loan types: Custom repayment schedules.

Supported collateralized assets: BTC, ETH, MKR, USDC, etc.

Supported borrower assets: WBTC, USDC, MKR, etc.

Loan to value range: 35 to 80%

Compound

Compound is another DeFi protocol with liquidity pools for different assets. When a user lends tokens, they go into the liquidity pools and are merged with other users’ tokens. Borrowers then assess the liquidity pools and later pay what was borrowed with interest rates.

Compound allows users to earn interest in the same token they provide to the lending pool. With interest rates being fixed or variable, earnings differ with tokens.

Below are some features of Compound:

• Lenders earn interest in the same token that was offered to the liquidity pool.

• Loans can be insured using Nexus Mutual.

Interest rate: Variable

Loan types: Principal plus interest.

Supported collateralized assets: WBTC, ETH, DAI, etc.

Supported borrower assets: WBTC, ETH, YFI, etc.

Loan to value range: 65 to 85%

MakerDAO

With MakerDAO, borrowers and lenders combine to generate DAI, a stablecoin that is pegged to the U.S. dollar. The protocols network is built on the Ethereum network and offers users flexible interest rates that range from 0% to 8.75%.

Below are some reasons why lenders choose MakeDAO.

• In the event of volatility, users can use asset management tools such as DeFi Saver to ensure vaults are sufficiently collateralized.
• MakerDAO vaults can be easily tracked because they are integrated into other asset management tools.
• Decentralized Governance: a community of MKR token holders governs the Maker Protocol

Interest rate: Variable

Loan types: Principal plus interest, flash loans.

Supported collateralized assets: BTC, ETH, MATIC, etc.

Supported borrower assets: DAI

Loan to value range: 54 to 99%

Frequently Asked Questions (FAQs)

What do people use crypto loans for?

When borrowers gain access to crypto loans, they use them for several purposes such as arbitrage trading, purchasing more crypto, and diversifying their investment portfolio by investing in crypto mortgages.

Why do crypto borrowing interest rates change?

Interest rates often change in response to the utilization of underlying capital pools. Assuming a vast number of tokens have been earmarked for borrowing, the lending and borrowing rate in relation to the crypto will be quite low. The interest rate becomes popular when the pool gains popularity.

Are there minimum or maximum loan amounts for crypto?

Yes, each lending and borrowing platform has its own minimum and maximum borrowing amount. While minimum loan amounts may be as low as $1,000, maximum amounts may be as high as millions.

Collateralized loans: These are the most common types of loans and work such that deposited cryptocurrency is used as collateral for the loan. In some protocols, over-collateralization is required so that borrowers can access only a specific percentage of the deposited collateral, usually below 90% of the loan-to-value.

• Uncollateralized loans: Though not popular, uncollateralized loans operate the same way as personal loans. To qualify, borrowers must fill out a loan application form, verify their identity and complete their creditworthiness review. These loans pose a great risk to lending institutions because the borrowers do not provide collateral that can be liquidated if the borrower defaults.

• Crypto line of credit: Some crypto platforms now offer a cryptocurrency line of credit, rather than following the traditional loan pathway. The crypto line of credit is a collateralized loan where users borrow up to a certain percentage of deposited collateral. These loans come with a set of repayment terms and users only pay interest on funds withdrawn.

• Flash loans: Flash loans are common in most cryptocurrency exchanges because these loans are borrowed and repaid in the same transaction. These loans are extremely risky and often used to take advantage of arbitrage opportunities in the market, such that a user can buy crypto at a lower price in one market and instantly sell at a higher price in another.

What Do Borrowers Use DeFi Loans for?

Just like traditional banks, borrowers have the right to use their loan proceeds however they deem fit. The same goes for DeFi. When a borrower borrows against crypto, the lender will fund the borrower’s wallet with the loan. However, there are specific use cases for crypto loans and they include:

• Buying more crypto: When users borrow against their crypto, they get more cash that can be used to buy more crypto assets. This way, investors can “buy the dip” without using their personal funds to add to their crypto portfolio. Even if the crypto market suddenly falls, the coins that investors have added to their portfolios will be used to meet margin calls in the lending platform.

• Crypto real estate mortgage: Investors can use borrowed crypto assets to acquire real estate or other rental properties, allowing them to retain their crypto assets and also enjoy the proceeds of their real estate investment. This also allows the borrower to maintain diverse investment portfolios such as real estate and crypto.

What are the Requirements to Access DeFi Loans?

Besides having some tokens which can be used as collateral, there are other requirements borrowers must meet to access DeFi Loans. These requirements are briefly explained below.

• Eligible collateral

To access crypto loans, it is essential to set aside a specific number of tokens that will serve as a form of collateral. The collateral is what determines the amount of coins a borrower can access. Unlike traditional banking where the credit score of borrowers is considered, DeFi uses the collateral deposited to determine the amount of loan the borrower gets. This entire process makes underwriting quick and simple.

Benefits and Risks of Crypto Loans.

Crypto loans come with their own risks and benefits, indicating that while DeFi has some unique advantages that help it thrive in the crypto industry, it may just not be best proved by crypto lending.

Benefits of Crypto Loans

The benefits of crypto loans are far-reaching and include:

• Rapid origination: Unlike traditional finance, crypto loans are swift and accessible by all. There are rarely credit checks or credit histories. DeFi lenders often offer flexible terms and low fees compared to what is obtainable in traditional finance.

• More credit access: Borrowers do not need to have traditional bank accounts to have access to crypto loans. Since one-third of the world’s population remains unbanked, DeFi makes it easier for the unbanked to have access to crypto loans.

• Retention of crypto assets: When borrowers gain access to crypto loans, they necessarily do not have to sell their crypto. They can get back their coins as soon as the loan is repaid.

• Varying loan terms: Crypto loan terms vary between seven days to 12 months.

• Diverse use case: Crypto loans have various use cases. They can be used to purchase more crypto or acquire real estate properties.

Risks of Crypto Loans

While crypto loans have so many advantages, certain risks apply. They include

• Margin calls: When a borrower’s collateral assets decline rapidly, there is a tendency for the loan to reach a liquidation threshold. This is why borrowers are also required to deposit more collateral.
• Cyber attacks: The crypto industry can be prone to security breaches and this can be a major setback to borrowers whose crypto custody has been temporarily transferred to the platform. Borrowers face the risk of losing their tokens should a hack occur.

Top DeFi Lending and Borrowing Protocols

There are a lot of DeFi lending and borrowing platforms in the cryptocurrency ecosystem. Some of them include Aave, MakerDAO, Compound, etc. 

Aave

Aave is an open-source decentralized protocol that offers users access to liquidity pools where they can lend their tokens to others in return for interest. This platform offers varying interest rates for different yields and interest rates vary for each token.

The interest rates paid to lenders often range around 1% and 3%. While interest rates change regularly, some tokens are associated with much higher yields.

Some reasons to choose Aave include:

• Flexible interest options as the rates can be fixed or floating.

• Borrowing can somewhat be flexible as Aave also offers flash loans.

• Aave offers a risk framework (A+ to D-) that displays the rating for various assets on the platform.

• Nexus Mutual offers loan insurance on Aave.

Interest rate: Fixed or variable

Loan types: Custom repayment schedules.

Supported collateralized assets: BTC, ETH, MKR, USDC, etc.

Supported borrower assets: WBTC, USDC, MKR, etc.

Loan to value range: 35 to 80%

Compound

Compound is another DeFi protocol with liquidity pools for different assets. When a user lends tokens, they go into the liquidity pools and are merged with other users’ tokens. Borrowers then assess the liquidity pools and later pay what was borrowed with interest rates.

Compound allows users to earn interest in the same token they provide to the lending pool. With interest rates being fixed or variable, earnings differ with tokens.

Below are some features of Compound:

• Lenders earn interest in the same token that was offered to the liquidity pool.

• Loans can be insured using Nexus Mutual.

Interest rate: Variable

Loan types: Principal plus interest.

Supported collateralized assets: WBTC, ETH, DAI, etc.

Supported borrower assets: WBTC, ETH, YFI, etc.

Loan to value range: 65 to 85%

MakerDAO

With MakerDAO, borrowers and lenders combine to generate DAI, a stablecoin that is pegged to the U.S. dollar. The protocols network is built on the Ethereum network and offers users flexible interest rates that range from 0% to 8.75%.

Below are some reasons why lenders choose MakeDAO.

• In the event of volatility, users can use asset management tools such as DeFi Saver to ensure vaults are sufficiently collateralized.
• MakerDAO vaults can be easily tracked because they are integrated into other asset management tools.
• Decentralized Governance: a community of MKR token holders governs the Maker Protocol

Interest rate: Variable

Loan types: Principal plus interest, flash loans.

Supported collateralized assets: BTC, ETH, MATIC, etc.

Supported borrower assets: DAI

Loan to value range: 54 to 99%

Frequently Asked Questions (FAQs)

What do people use crypto loans for?

When borrowers gain access to crypto loans, they use them for several purposes such as arbitrage trading, purchasing more crypto, and diversifying their investment portfolio by investing in crypto mortgages.

Why do crypto borrowing interest rates change?

Interest rates often change in response to the utilization of underlying capital pools. Assuming a vast number of tokens have been earmarked for borrowing, the lending and borrowing rate in relation to the crypto will be quite low. The interest rate becomes popular when the pool gains popularity.

Are there minimum or maximum loan amounts for crypto?

Yes, each lending and borrowing platform has its own minimum and maximum borrowing amount. While minimum loan amounts may be as low as $1,000, maximum amounts may be as high as millions.

• Collateralized loans: These are the most common types of loans and work such that deposited cryptocurrency is used as collateral for the loan. In some protocols, over-collateralization is required so that borrowers can access only a specific percentage of the deposited collateral, usually below 90% of the loan-to-value.

• Uncollateralized loans: Though not popular, uncollateralized loans operate the same way as personal loans. To qualify, borrowers must fill out a loan application form, verify their identity and complete their creditworthiness review. These loans pose a great risk to lending institutions because the borrowers do not provide collateral that can be liquidated if the borrower defaults.

• Crypto line of credit: Some crypto platforms now offer a cryptocurrency line of credit, rather than following the traditional loan pathway. The crypto line of credit is a collateralized loan where users borrow up to a certain percentage of deposited collateral. These loans come with a set of repayment terms and users only pay interest on funds withdrawn.

• Flash loans: Flash loans are common in most cryptocurrency exchanges because these loans are borrowed and repaid in the same transaction. These loans are extremely risky and often used to take advantage of arbitrage opportunities in the market, such that a user can buy crypto at a lower price in one market and instantly sell at a higher price in another.

What Do Borrowers Use DeFi Loans for?

Just like traditional banks, borrowers have the right to use their loan proceeds however they deem fit. The same goes for DeFi. When a borrower borrows against crypto, the lender will fund the borrower’s wallet with the loan. However, there are specific use cases for crypto loans and they include:

• Buying more crypto: When users borrow against their crypto, they get more cash that can be used to buy more crypto assets. This way, investors can “buy the dip” without using their personal funds to add to their crypto portfolio. Even if the crypto market suddenly falls, the coins that investors have added to their portfolios will be used to meet margin calls in the lending platform.

• Crypto real estate mortgage: Investors can use borrowed crypto assets to acquire real estate or other rental properties, allowing them to retain their crypto assets and also enjoy the proceeds of their real estate investment. This also allows the borrower to maintain diverse investment portfolios such as real estate and crypto.

What are the Requirements to Access DeFi Loans?

Besides having some tokens which can be used as collateral, there are other requirements borrowers must meet to access DeFi Loans. These requirements are briefly explained below.

• Eligible collateral

To access crypto loans, it is essential to set aside a specific number of tokens that will serve as a form of collateral. The collateral is what determines the amount of coins a borrower can access. Unlike traditional banking where the credit score of borrowers is considered, DeFi uses the collateral deposited to determine the amount of loan the borrower gets. This entire process makes underwriting quick and simple.

Benefits and Risks of Crypto Loans.

Crypto loans come with their own risks and benefits, indicating that while DeFi has some unique advantages that help it thrive in the crypto industry, it may just not be best proved by crypto lending.

Benefits of Crypto Loans

The benefits of crypto loans are far-reaching and include:

• Rapid origination: Unlike traditional finance, crypto loans are swift and accessible by all. There are rarely credit checks or credit histories. DeFi lenders often offer flexible terms and low fees compared to what is obtainable in traditional finance.

• More credit access: Borrowers do not need to have traditional bank accounts to have access to crypto loans. Since one-third of the world’s population remains unbanked, DeFi makes it easier for the unbanked to have access to crypto loans.

• Retention of crypto assets: When borrowers gain access to crypto loans, they necessarily do not have to sell their crypto. They can get back their coins as soon as the loan is repaid.

• Varying loan terms: Crypto loan terms vary between seven days to 12 months.

• Diverse use case: Crypto loans have various use cases. They can be used to purchase more crypto or acquire real estate properties.

Risks of Crypto Loans

While crypto loans have so many advantages, certain risks apply. They include

• Margin calls: When a borrower’s collateral assets decline rapidly, there is a tendency for the loan to reach a liquidation threshold. This is why borrowers are also required to deposit more collateral.
• Cyber attacks: The crypto industry can be prone to security breaches and this can be a major setback to borrowers whose crypto custody has been temporarily transferred to the platform. Borrowers face the risk of losing their tokens should a hack occur.

Top DeFi Lending and Borrowing Protocols

There are a lot of DeFi lending and borrowing platforms in the cryptocurrency ecosystem. Some of them include Aave, MakerDAO, Compound, etc. 

Aave

Aave is an open-source decentralized protocol that offers users access to liquidity pools where they can lend their tokens to others in return for interest. This platform offers varying interest rates for different yields and interest rates vary for each token.

The interest rates paid to lenders often range around 1% and 3%. While interest rates change regularly, some tokens are associated with much higher yields.

Some reasons to choose Aave include:

• Flexible interest options as the rates can be fixed or floating.

• Borrowing can somewhat be flexible as Aave also offers flash loans.

• Aave offers a risk framework (A+ to D-) that displays the rating for various assets on the platform.

• Nexus Mutual offers loan insurance on Aave.

Interest rate: Fixed or variable

Loan types: Custom repayment schedules.

Supported collateralized assets: BTC, ETH, MKR, USDC, etc.

Supported borrower assets: WBTC, USDC, MKR, etc.

Loan to value range: 35 to 80%

Compound

Compound is another DeFi protocol with liquidity pools for different assets. When a user lends tokens, they go into the liquidity pools and are merged with other users’ tokens. Borrowers then assess the liquidity pools and later pay what was borrowed with interest rates.

Compound allows users to earn interest in the same token they provide to the lending pool. With interest rates being fixed or variable, earnings differ with tokens.

Below are some features of Compound:

• Lenders earn interest in the same token that was offered to the liquidity pool.

• Loans can be insured using Nexus Mutual.

Interest rate: Variable

Loan types: Principal plus interest.

Supported collateralized assets: WBTC, ETH, DAI, etc.

Supported borrower assets: WBTC, ETH, YFI, etc.

Loan to value range: 65 to 85%

MakerDAO

With MakerDAO, borrowers and lenders combine to generate DAI, a stablecoin that is pegged to the U.S. dollar. The protocols network is built on the Ethereum network and offers users flexible interest rates that range from 0% to 8.75%.

Below are some reasons why lenders choose MakeDAO.

• In the event of volatility, users can use asset management tools such as DeFi Saver to ensure vaults are sufficiently collateralized.
• MakerDAO vaults can be easily tracked because they are integrated into other asset management tools.
• Decentralized Governance: a community of MKR token holders governs the Maker Protocol

Interest rate: Variable

Loan types: Principal plus interest, flash loans.

Supported collateralized assets: BTC, ETH, MATIC, etc.

Supported borrower assets: DAI

Loan to value range: 54 to 99%

Frequently Asked Questions (FAQs)

What do people use crypto loans for?

When borrowers gain access to crypto loans, they use them for several purposes such as arbitrage trading, purchasing more crypto, and diversifying their investment portfolio by investing in crypto mortgages.

Why do crypto borrowing interest rates change?

Interest rates often change in response to the utilization of underlying capital pools. Assuming a vast number of tokens have been earmarked for borrowing, the lending and borrowing rate in relation to the crypto will be quite low. The interest rate becomes popular when the pool gains popularity.

Are there minimum or maximum loan amounts for crypto?

Yes, each lending and borrowing platform has its own minimum and maximum borrowing amount. While minimum loan amounts may be as low as $1,000, maximum amounts may be as high as millions.

• Collateralized loans: These are the most common types of loans and work such that deposited cryptocurrency is used as collateral for the loan. In some protocols, over-collateralization is required so that borrowers can access only a specific percentage of the deposited collateral, usually below 90% of the loan-to-value.

• Uncollateralized loans: Though not popular, uncollateralized loans operate the same way as personal loans. To qualify, borrowers must fill out a loan application form, verify their identity and complete their creditworthiness review. These loans pose a great risk to lending institutions because the borrowers do not provide collateral that can be liquidated if the borrower defaults.

• Crypto line of credit: Some crypto platforms now offer a cryptocurrency line of credit, rather than following the traditional loan pathway. The crypto line of credit is a collateralized loan where users borrow up to a certain percentage of deposited collateral. These loans come with a set of repayment terms and users only pay interest on funds withdrawn.

• Flash loans: Flash loans are common in most cryptocurrency exchanges because these loans are borrowed and repaid in the same transaction. These loans are extremely risky and often used to take advantage of arbitrage opportunities in the market, such that a user can buy crypto at a lower price in one market and instantly sell at a higher price in another.

What Do Borrowers Use DeFi Loans for?

Just like traditional banks, borrowers have the right to use their loan proceeds however they deem fit. The same goes for DeFi. When a borrower borrows against crypto, the lender will fund the borrower’s wallet with the loan. However, there are specific use cases for crypto loans and they include:

• Buying more crypto: When users borrow against their crypto, they get more cash that can be used to buy more crypto assets. This way, investors can “buy the dip” without using their personal funds to add to their crypto portfolio. Even if the crypto market suddenly falls, the coins that investors have added to their portfolios will be used to meet margin calls in the lending platform.

• Crypto real estate mortgage: Investors can use borrowed crypto assets to acquire real estate or other rental properties, allowing them to retain their crypto assets and also enjoy the proceeds of their real estate investment. This also allows the borrower to maintain diverse investment portfolios such as real estate and crypto.

What are the Requirements to Access DeFi Loans?

Besides having some tokens which can be used as collateral, there are other requirements borrowers must meet to access DeFi Loans. These requirements are briefly explained below.

• Eligible collateral

To access crypto loans, it is essential to set aside a specific number of tokens that will serve as a form of collateral. The collateral is what determines the amount of coins a borrower can access. Unlike traditional banking where the credit score of borrowers is considered, DeFi uses the collateral deposited to determine the amount of loan the borrower gets. This entire process makes underwriting quick and simple.

Benefits and Risks of Crypto Loans.

Crypto loans come with their own risks and benefits, indicating that while DeFi has some unique advantages that help it thrive in the crypto industry, it may just not be best proved by crypto lending.

Benefits of Crypto Loans

The benefits of crypto loans are far-reaching and include:

• Rapid origination: Unlike traditional finance, crypto loans are swift and accessible by all. There are rarely credit checks or credit histories. DeFi lenders often offer flexible terms and low fees compared to what is obtainable in traditional finance.

• More credit access: Borrowers do not need to have traditional bank accounts to have access to crypto loans. Since one-third of the world’s population remains unbanked, DeFi makes it easier for the unbanked to have access to crypto loans.

• Retention of crypto assets: When borrowers gain access to crypto loans, they necessarily do not have to sell their crypto. They can get back their coins as soon as the loan is repaid.

• Varying loan terms: Crypto loan terms vary between seven days to 12 months.

• Diverse use case: Crypto loans have various use cases. They can be used to purchase more crypto or acquire real estate properties.

Risks of Crypto Loans

While crypto loans have so many advantages, certain risks apply. They include

• Margin calls: When a borrower’s collateral assets decline rapidly, there is a tendency for the loan to reach a liquidation threshold. This is why borrowers are also required to deposit more collateral.
• Cyber attacks: The crypto industry can be prone to security breaches and this can be a major setback to borrowers whose crypto custody has been temporarily transferred to the platform. Borrowers face the risk of losing their tokens should a hack occur.

Top DeFi Lending and Borrowing Protocols

There are a lot of DeFi lending and borrowing platforms in the cryptocurrency ecosystem. Some of them include Aave, MakerDAO, Compound, etc. 

Aave

Aave is an open-source decentralized protocol that offers users access to liquidity pools where they can lend their tokens to others in return for interest. This platform offers varying interest rates for different yields and interest rates vary for each token.

The interest rates paid to lenders often range around 1% and 3%. While interest rates change regularly, some tokens are associated with much higher yields.

Some reasons to choose Aave include:

• Flexible interest options as the rates can be fixed or floating.

• Borrowing can somewhat be flexible as Aave also offers flash loans.

• Aave offers a risk framework (A+ to D-) that displays the rating for various assets on the platform.

• Nexus Mutual offers loan insurance on Aave.

Interest rate: Fixed or variable

Loan types: Custom repayment schedules.

Supported collateralized assets: BTC, ETH, MKR, USDC, etc.

Supported borrower assets: WBTC, USDC, MKR, etc.

Loan to value range: 35 to 80%

Compound

Compound is another DeFi protocol with liquidity pools for different assets. When a user lends tokens, they go into the liquidity pools and are merged with other users’ tokens. Borrowers then assess the liquidity pools and later pay what was borrowed with interest rates.

Compound allows users to earn interest in the same token they provide to the lending pool. With interest rates being fixed or variable, earnings differ with tokens.

Below are some features of Compound:

• Lenders earn interest in the same token that was offered to the liquidity pool.

• Loans can be insured using Nexus Mutual.

Interest rate: Variable

Loan types: Principal plus interest.

Supported collateralized assets: WBTC, ETH, DAI, etc.

Supported borrower assets: WBTC, ETH, YFI, etc.

Loan to value range: 65 to 85%

MakerDAO

With MakerDAO, borrowers and lenders combine to generate DAI, a stablecoin that is pegged to the U.S. dollar. The protocols network is built on the Ethereum network and offers users flexible interest rates that range from 0% to 8.75%.

Below are some reasons why lenders choose MakeDAO.

• In the event of volatility, users can use asset management tools such as DeFi Saver to ensure vaults are sufficiently collateralized.
• MakerDAO vaults can be easily tracked because they are integrated into other asset management tools.
• Decentralized Governance: a community of MKR token holders governs the Maker Protocol

Interest rate: Variable

Loan types: Principal plus interest, flash loans.

Supported collateralized assets: BTC, ETH, MATIC, etc.

Supported borrower assets: DAI

Loan to value range: 54 to 99%

Frequently Asked Questions (FAQs)

What do people use crypto loans for?

When borrowers gain access to crypto loans, they use them for several purposes such as arbitrage trading, purchasing more crypto, and diversifying their investment portfolio by investing in crypto mortgages.

Why do crypto borrowing interest rates change?

Interest rates often change in response to the utilization of underlying capital pools. Assuming a vast number of tokens have been earmarked for borrowing, the lending and borrowing rate in relation to the crypto will be quite low. The interest rate becomes popular when the pool gains popularity.

Are there minimum or maximum loan amounts for crypto?

Yes, each lending and borrowing platform has its own minimum and maximum borrowing amount. While minimum loan amounts may be as low as $1,000, maximum amounts may be as high as millions.

DeFi is anonymous and decentralized since it is built on the blockchain.

• Lending pools remain one of the common ways to generate interest on crypto assets.

• By over-collateralizing their loans, borrowers can protect their collateral against sudden price drops.

To understand how DeFi loans work, assume an investor plans to borrow ETH from a liquidity pool that contains ETH/DAI trading pairs. This means to access one ETH, the borrower will deposit some DAI that is slightly above the value of one ETH via a smart contract.

At the point of repayment, the borrower reclaims the original value of DAI deposited in the pool. But if the value of the ETH drops before it is repaid or the borrower defaults, the collateral can be liquidated by a certain percentage.

Types of DeFi Loans

There are four types of crypto loans and they include:

• Collateralized loans: These are the most common types of loans and work such that deposited cryptocurrency is used as collateral for the loan. In some protocols, over-collateralization is required so that borrowers can access only a specific percentage of the deposited collateral, usually below 90% of the loan-to-value.

• Uncollateralized loans: Though not popular, uncollateralized loans operate the same way as personal loans. To qualify, borrowers must fill out a loan application form, verify their identity and complete their creditworthiness review. These loans pose a great risk to lending institutions because the borrowers do not provide collateral that can be liquidated if the borrower defaults.

• Crypto line of credit: Some crypto platforms now offer a cryptocurrency line of credit, rather than following the traditional loan pathway. The crypto line of credit is a collateralized loan where users borrow up to a certain percentage of deposited collateral. These loans come with a set of repayment terms and users only pay interest on funds withdrawn.

• Flash loans: Flash loans are common in most cryptocurrency exchanges because these loans are borrowed and repaid in the same transaction. These loans are extremely risky and often used to take advantage of arbitrage opportunities in the market, such that a user can buy crypto at a lower price in one market and instantly sell at a higher price in another.

What Do Borrowers Use DeFi Loans for?

Just like traditional banks, borrowers have the right to use their loan proceeds however they deem fit. The same goes for DeFi. When a borrower borrows against crypto, the lender will fund the borrower’s wallet with the loan. However, there are specific use cases for crypto loans and they include:

• Buying more crypto: When users borrow against their crypto, they get more cash that can be used to buy more crypto assets. This way, investors can “buy the dip” without using their personal funds to add to their crypto portfolio. Even if the crypto market suddenly falls, the coins that investors have added to their portfolios will be used to meet margin calls in the lending platform.

• Crypto real estate mortgage: Investors can use borrowed crypto assets to acquire real estate or other rental properties, allowing them to retain their crypto assets and also enjoy the proceeds of their real estate investment. This also allows the borrower to maintain diverse investment portfolios such as real estate and crypto.

What are the Requirements to Access DeFi Loans?

Besides having some tokens which can be used as collateral, there are other requirements borrowers must meet to access DeFi Loans. These requirements are briefly explained below.

• Eligible collateral

To access crypto loans, it is essential to set aside a specific number of tokens that will serve as a form of collateral. The collateral is what determines the amount of coins a borrower can access. Unlike traditional banking where the credit score of borrowers is considered, DeFi uses the collateral deposited to determine the amount of loan the borrower gets. This entire process makes underwriting quick and simple.

Benefits and Risks of Crypto Loans.

Crypto loans come with their own risks and benefits, indicating that while DeFi has some unique advantages that help it thrive in the crypto industry, it may just not be best proved by crypto lending.

Benefits of Crypto Loans

The benefits of crypto loans are far-reaching and include:

• Rapid origination: Unlike traditional finance, crypto loans are swift and accessible by all. There are rarely credit checks or credit histories. DeFi lenders often offer flexible terms and low fees compared to what is obtainable in traditional finance.

• More credit access: Borrowers do not need to have traditional bank accounts to have access to crypto loans. Since one-third of the world’s population remains unbanked, DeFi makes it easier for the unbanked to have access to crypto loans.

• Retention of crypto assets: When borrowers gain access to crypto loans, they necessarily do not have to sell their crypto. They can get back their coins as soon as the loan is repaid.

• Varying loan terms: Crypto loan terms vary between seven days to 12 months.

• Diverse use case: Crypto loans have various use cases. They can be used to purchase more crypto or acquire real estate properties.

Risks of Crypto Loans

While crypto loans have so many advantages, certain risks apply. They include

• Margin calls: When a borrower’s collateral assets decline rapidly, there is a tendency for the loan to reach a liquidation threshold. This is why borrowers are also required to deposit more collateral.
• Cyber attacks: The crypto industry can be prone to security breaches and this can be a major setback to borrowers whose crypto custody has been temporarily transferred to the platform. Borrowers face the risk of losing their tokens should a hack occur.

Top DeFi Lending and Borrowing Protocols

There are a lot of DeFi lending and borrowing platforms in the cryptocurrency ecosystem. Some of them include Aave, MakerDAO, Compound, etc. 

Aave

Aave is an open-source decentralized protocol that offers users access to liquidity pools where they can lend their tokens to others in return for interest. This platform offers varying interest rates for different yields and interest rates vary for each token.

The interest rates paid to lenders often range around 1% and 3%. While interest rates change regularly, some tokens are associated with much higher yields.

Some reasons to choose Aave include:

• Flexible interest options as the rates can be fixed or floating.

• Borrowing can somewhat be flexible as Aave also offers flash loans.

• Aave offers a risk framework (A+ to D-) that displays the rating for various assets on the platform.

• Nexus Mutual offers loan insurance on Aave.

Interest rate: Fixed or variable

Loan types: Custom repayment schedules.

Supported collateralized assets: BTC, ETH, MKR, USDC, etc.

Supported borrower assets: WBTC, USDC, MKR, etc.

Loan to value range: 35 to 80%

Compound

Compound is another DeFi protocol with liquidity pools for different assets. When a user lends tokens, they go into the liquidity pools and are merged with other users’ tokens. Borrowers then assess the liquidity pools and later pay what was borrowed with interest rates.

Compound allows users to earn interest in the same token they provide to the lending pool. With interest rates being fixed or variable, earnings differ with tokens.

Below are some features of Compound:

• Lenders earn interest in the same token that was offered to the liquidity pool.

• Loans can be insured using Nexus Mutual.

Interest rate: Variable

Loan types: Principal plus interest.

Supported collateralized assets: WBTC, ETH, DAI, etc.

Supported borrower assets: WBTC, ETH, YFI, etc.

Loan to value range: 65 to 85%

MakerDAO

With MakerDAO, borrowers and lenders combine to generate DAI, a stablecoin that is pegged to the U.S. dollar. The protocols network is built on the Ethereum network and offers users flexible interest rates that range from 0% to 8.75%.

Below are some reasons why lenders choose MakeDAO.

• In the event of volatility, users can use asset management tools such as DeFi Saver to ensure vaults are sufficiently collateralized.
• MakerDAO vaults can be easily tracked because they are integrated into other asset management tools.
• Decentralized Governance: a community of MKR token holders governs the Maker Protocol

Interest rate: Variable

Loan types: Principal plus interest, flash loans.

Supported collateralized assets: BTC, ETH, MATIC, etc.

Supported borrower assets: DAI

Loan to value range: 54 to 99%

Frequently Asked Questions (FAQs)

What do people use crypto loans for?

When borrowers gain access to crypto loans, they use them for several purposes such as arbitrage trading, purchasing more crypto, and diversifying their investment portfolio by investing in crypto mortgages.

Why do crypto borrowing interest rates change?

Interest rates often change in response to the utilization of underlying capital pools. Assuming a vast number of tokens have been earmarked for borrowing, the lending and borrowing rate in relation to the crypto will be quite low. The interest rate becomes popular when the pool gains popularity.

Are there minimum or maximum loan amounts for crypto?

Yes, each lending and borrowing platform has its own minimum and maximum borrowing amount. While minimum loan amounts may be as low as $1,000, maximum amounts may be as high as millions.

Investors can earn interest when they lend out crypto assets.

• DeFi is anonymous and decentralized since it is built on the blockchain.

• Lending pools remain one of the common ways to generate interest on crypto assets.

• By over-collateralizing their loans, borrowers can protect their collateral against sudden price drops.

To understand how DeFi loans work, assume an investor plans to borrow ETH from a liquidity pool that contains ETH/DAI trading pairs. This means to access one ETH, the borrower will deposit some DAI that is slightly above the value of one ETH via a smart contract.

At the point of repayment, the borrower reclaims the original value of DAI deposited in the pool. But if the value of the ETH drops before it is repaid or the borrower defaults, the collateral can be liquidated by a certain percentage.

Types of DeFi Loans

There are four types of crypto loans and they include:

• Collateralized loans: These are the most common types of loans and work such that deposited cryptocurrency is used as collateral for the loan. In some protocols, over-collateralization is required so that borrowers can access only a specific percentage of the deposited collateral, usually below 90% of the loan-to-value.

• Uncollateralized loans: Though not popular, uncollateralized loans operate the same way as personal loans. To qualify, borrowers must fill out a loan application form, verify their identity and complete their creditworthiness review. These loans pose a great risk to lending institutions because the borrowers do not provide collateral that can be liquidated if the borrower defaults.

• Crypto line of credit: Some crypto platforms now offer a cryptocurrency line of credit, rather than following the traditional loan pathway. The crypto line of credit is a collateralized loan where users borrow up to a certain percentage of deposited collateral. These loans come with a set of repayment terms and users only pay interest on funds withdrawn.

• Flash loans: Flash loans are common in most cryptocurrency exchanges because these loans are borrowed and repaid in the same transaction. These loans are extremely risky and often used to take advantage of arbitrage opportunities in the market, such that a user can buy crypto at a lower price in one market and instantly sell at a higher price in another.

What Do Borrowers Use DeFi Loans for?

Just like traditional banks, borrowers have the right to use their loan proceeds however they deem fit. The same goes for DeFi. When a borrower borrows against crypto, the lender will fund the borrower’s wallet with the loan. However, there are specific use cases for crypto loans and they include:

• Buying more crypto: When users borrow against their crypto, they get more cash that can be used to buy more crypto assets. This way, investors can “buy the dip” without using their personal funds to add to their crypto portfolio. Even if the crypto market suddenly falls, the coins that investors have added to their portfolios will be used to meet margin calls in the lending platform.

• Crypto real estate mortgage: Investors can use borrowed crypto assets to acquire real estate or other rental properties, allowing them to retain their crypto assets and also enjoy the proceeds of their real estate investment. This also allows the borrower to maintain diverse investment portfolios such as real estate and crypto.

What are the Requirements to Access DeFi Loans?

Besides having some tokens which can be used as collateral, there are other requirements borrowers must meet to access DeFi Loans. These requirements are briefly explained below.

• Eligible collateral

To access crypto loans, it is essential to set aside a specific number of tokens that will serve as a form of collateral. The collateral is what determines the amount of coins a borrower can access. Unlike traditional banking where the credit score of borrowers is considered, DeFi uses the collateral deposited to determine the amount of loan the borrower gets. This entire process makes underwriting quick and simple.

Benefits and Risks of Crypto Loans.

Crypto loans come with their own risks and benefits, indicating that while DeFi has some unique advantages that help it thrive in the crypto industry, it may just not be best proved by crypto lending.

Benefits of Crypto Loans

The benefits of crypto loans are far-reaching and include:

• Rapid origination: Unlike traditional finance, crypto loans are swift and accessible by all. There are rarely credit checks or credit histories. DeFi lenders often offer flexible terms and low fees compared to what is obtainable in traditional finance.

• More credit access: Borrowers do not need to have traditional bank accounts to have access to crypto loans. Since one-third of the world’s population remains unbanked, DeFi makes it easier for the unbanked to have access to crypto loans.

• Retention of crypto assets: When borrowers gain access to crypto loans, they necessarily do not have to sell their crypto. They can get back their coins as soon as the loan is repaid.

• Varying loan terms: Crypto loan terms vary between seven days to 12 months.

• Diverse use case: Crypto loans have various use cases. They can be used to purchase more crypto or acquire real estate properties.

Risks of Crypto Loans

While crypto loans have so many advantages, certain risks apply. They include

• Margin calls: When a borrower’s collateral assets decline rapidly, there is a tendency for the loan to reach a liquidation threshold. This is why borrowers are also required to deposit more collateral.
• Cyber attacks: The crypto industry can be prone to security breaches and this can be a major setback to borrowers whose crypto custody has been temporarily transferred to the platform. Borrowers face the risk of losing their tokens should a hack occur.

Top DeFi Lending and Borrowing Protocols

There are a lot of DeFi lending and borrowing platforms in the cryptocurrency ecosystem. Some of them include Aave, MakerDAO, Compound, etc. 

Aave

Aave is an open-source decentralized protocol that offers users access to liquidity pools where they can lend their tokens to others in return for interest. This platform offers varying interest rates for different yields and interest rates vary for each token.

The interest rates paid to lenders often range around 1% and 3%. While interest rates change regularly, some tokens are associated with much higher yields.

Some reasons to choose Aave include:

• Flexible interest options as the rates can be fixed or floating.

• Borrowing can somewhat be flexible as Aave also offers flash loans.

• Aave offers a risk framework (A+ to D-) that displays the rating for various assets on the platform.

• Nexus Mutual offers loan insurance on Aave.

Interest rate: Fixed or variable

Loan types: Custom repayment schedules.

Supported collateralized assets: BTC, ETH, MKR, USDC, etc.

Supported borrower assets: WBTC, USDC, MKR, etc.

Loan to value range: 35 to 80%

Compound

Compound is another DeFi protocol with liquidity pools for different assets. When a user lends tokens, they go into the liquidity pools and are merged with other users’ tokens. Borrowers then assess the liquidity pools and later pay what was borrowed with interest rates.

Compound allows users to earn interest in the same token they provide to the lending pool. With interest rates being fixed or variable, earnings differ with tokens.

Below are some features of Compound:

• Lenders earn interest in the same token that was offered to the liquidity pool.

• Loans can be insured using Nexus Mutual.

Interest rate: Variable

Loan types: Principal plus interest.

Supported collateralized assets: WBTC, ETH, DAI, etc.

Supported borrower assets: WBTC, ETH, YFI, etc.

Loan to value range: 65 to 85%

MakerDAO

With MakerDAO, borrowers and lenders combine to generate DAI, a stablecoin that is pegged to the U.S. dollar. The protocols network is built on the Ethereum network and offers users flexible interest rates that range from 0% to 8.75%.

Below are some reasons why lenders choose MakeDAO.

• In the event of volatility, users can use asset management tools such as DeFi Saver to ensure vaults are sufficiently collateralized.
• MakerDAO vaults can be easily tracked because they are integrated into other asset management tools.
• Decentralized Governance: a community of MKR token holders governs the Maker Protocol

Interest rate: Variable

Loan types: Principal plus interest, flash loans.

Supported collateralized assets: BTC, ETH, MATIC, etc.

Supported borrower assets: DAI

Loan to value range: 54 to 99%

Frequently Asked Questions (FAQs)

What do people use crypto loans for?

When borrowers gain access to crypto loans, they use them for several purposes such as arbitrage trading, purchasing more crypto, and diversifying their investment portfolio by investing in crypto mortgages.

Why do crypto borrowing interest rates change?

Interest rates often change in response to the utilization of underlying capital pools. Assuming a vast number of tokens have been earmarked for borrowing, the lending and borrowing rate in relation to the crypto will be quite low. The interest rate becomes popular when the pool gains popularity.

Are there minimum or maximum loan amounts for crypto?

Yes, each lending and borrowing platform has its own minimum and maximum borrowing amount. While minimum loan amounts may be as low as $1,000, maximum amounts may be as high as millions.

• Investors can earn interest when they lend out crypto assets.

• DeFi is anonymous and decentralized since it is built on the blockchain.

• Lending pools remain one of the common ways to generate interest on crypto assets.

• By over-collateralizing their loans, borrowers can protect their collateral against sudden price drops.

To understand how DeFi loans work, assume an investor plans to borrow ETH from a liquidity pool that contains ETH/DAI trading pairs. This means to access one ETH, the borrower will deposit some DAI that is slightly above the value of one ETH via a smart contract.

At the point of repayment, the borrower reclaims the original value of DAI deposited in the pool. But if the value of the ETH drops before it is repaid or the borrower defaults, the collateral can be liquidated by a certain percentage.

Types of DeFi Loans

There are four types of crypto loans and they include:

• Collateralized loans: These are the most common types of loans and work such that deposited cryptocurrency is used as collateral for the loan. In some protocols, over-collateralization is required so that borrowers can access only a specific percentage of the deposited collateral, usually below 90% of the loan-to-value.

• Uncollateralized loans: Though not popular, uncollateralized loans operate the same way as personal loans. To qualify, borrowers must fill out a loan application form, verify their identity and complete their creditworthiness review. These loans pose a great risk to lending institutions because the borrowers do not provide collateral that can be liquidated if the borrower defaults.

• Crypto line of credit: Some crypto platforms now offer a cryptocurrency line of credit, rather than following the traditional loan pathway. The crypto line of credit is a collateralized loan where users borrow up to a certain percentage of deposited collateral. These loans come with a set of repayment terms and users only pay interest on funds withdrawn.

• Flash loans: Flash loans are common in most cryptocurrency exchanges because these loans are borrowed and repaid in the same transaction. These loans are extremely risky and often used to take advantage of arbitrage opportunities in the market, such that a user can buy crypto at a lower price in one market and instantly sell at a higher price in another.

What Do Borrowers Use DeFi Loans for?

Just like traditional banks, borrowers have the right to use their loan proceeds however they deem fit. The same goes for DeFi. When a borrower borrows against crypto, the lender will fund the borrower’s wallet with the loan. However, there are specific use cases for crypto loans and they include:

• Buying more crypto: When users borrow against their crypto, they get more cash that can be used to buy more crypto assets. This way, investors can “buy the dip” without using their personal funds to add to their crypto portfolio. Even if the crypto market suddenly falls, the coins that investors have added to their portfolios will be used to meet margin calls in the lending platform.

• Crypto real estate mortgage: Investors can use borrowed crypto assets to acquire real estate or other rental properties, allowing them to retain their crypto assets and also enjoy the proceeds of their real estate investment. This also allows the borrower to maintain diverse investment portfolios such as real estate and crypto.

What are the Requirements to Access DeFi Loans?

Besides having some tokens which can be used as collateral, there are other requirements borrowers must meet to access DeFi Loans. These requirements are briefly explained below.

• Eligible collateral

To access crypto loans, it is essential to set aside a specific number of tokens that will serve as a form of collateral. The collateral is what determines the amount of coins a borrower can access. Unlike traditional banking where the credit score of borrowers is considered, DeFi uses the collateral deposited to determine the amount of loan the borrower gets. This entire process makes underwriting quick and simple.

Benefits and Risks of Crypto Loans.

Crypto loans come with their own risks and benefits, indicating that while DeFi has some unique advantages that help it thrive in the crypto industry, it may just not be best proved by crypto lending.

Benefits of Crypto Loans

The benefits of crypto loans are far-reaching and include:

• Rapid origination: Unlike traditional finance, crypto loans are swift and accessible by all. There are rarely credit checks or credit histories. DeFi lenders often offer flexible terms and low fees compared to what is obtainable in traditional finance.

• More credit access: Borrowers do not need to have traditional bank accounts to have access to crypto loans. Since one-third of the world’s population remains unbanked, DeFi makes it easier for the unbanked to have access to crypto loans.

• Retention of crypto assets: When borrowers gain access to crypto loans, they necessarily do not have to sell their crypto. They can get back their coins as soon as the loan is repaid.

• Varying loan terms: Crypto loan terms vary between seven days to 12 months.

• Diverse use case: Crypto loans have various use cases. They can be used to purchase more crypto or acquire real estate properties.

Risks of Crypto Loans

While crypto loans have so many advantages, certain risks apply. They include

• Margin calls: When a borrower’s collateral assets decline rapidly, there is a tendency for the loan to reach a liquidation threshold. This is why borrowers are also required to deposit more collateral.
• Cyber attacks: The crypto industry can be prone to security breaches and this can be a major setback to borrowers whose crypto custody has been temporarily transferred to the platform. Borrowers face the risk of losing their tokens should a hack occur.

Top DeFi Lending and Borrowing Protocols

There are a lot of DeFi lending and borrowing platforms in the cryptocurrency ecosystem. Some of them include Aave, MakerDAO, Compound, etc. 

Aave

Aave is an open-source decentralized protocol that offers users access to liquidity pools where they can lend their tokens to others in return for interest. This platform offers varying interest rates for different yields and interest rates vary for each token.

The interest rates paid to lenders often range around 1% and 3%. While interest rates change regularly, some tokens are associated with much higher yields.

Some reasons to choose Aave include:

• Flexible interest options as the rates can be fixed or floating.

• Borrowing can somewhat be flexible as Aave also offers flash loans.

• Aave offers a risk framework (A+ to D-) that displays the rating for various assets on the platform.

• Nexus Mutual offers loan insurance on Aave.

Interest rate: Fixed or variable

Loan types: Custom repayment schedules.

Supported collateralized assets: BTC, ETH, MKR, USDC, etc.

Supported borrower assets: WBTC, USDC, MKR, etc.

Loan to value range: 35 to 80%

Compound

Compound is another DeFi protocol with liquidity pools for different assets. When a user lends tokens, they go into the liquidity pools and are merged with other users’ tokens. Borrowers then assess the liquidity pools and later pay what was borrowed with interest rates.

Compound allows users to earn interest in the same token they provide to the lending pool. With interest rates being fixed or variable, earnings differ with tokens.

Below are some features of Compound:

• Lenders earn interest in the same token that was offered to the liquidity pool.

• Loans can be insured using Nexus Mutual.

Interest rate: Variable

Loan types: Principal plus interest.

Supported collateralized assets: WBTC, ETH, DAI, etc.

Supported borrower assets: WBTC, ETH, YFI, etc.

Loan to value range: 65 to 85%

MakerDAO

With MakerDAO, borrowers and lenders combine to generate DAI, a stablecoin that is pegged to the U.S. dollar. The protocols network is built on the Ethereum network and offers users flexible interest rates that range from 0% to 8.75%.

Below are some reasons why lenders choose MakeDAO.

• In the event of volatility, users can use asset management tools such as DeFi Saver to ensure vaults are sufficiently collateralized.
• MakerDAO vaults can be easily tracked because they are integrated into other asset management tools.
• Decentralized Governance: a community of MKR token holders governs the Maker Protocol

Interest rate: Variable

Loan types: Principal plus interest, flash loans.

Supported collateralized assets: BTC, ETH, MATIC, etc.

Supported borrower assets: DAI

Loan to value range: 54 to 99%

Frequently Asked Questions (FAQs)

What do people use crypto loans for?

When borrowers gain access to crypto loans, they use them for several purposes such as arbitrage trading, purchasing more crypto, and diversifying their investment portfolio by investing in crypto mortgages.

Why do crypto borrowing interest rates change?

Interest rates often change in response to the utilization of underlying capital pools. Assuming a vast number of tokens have been earmarked for borrowing, the lending and borrowing rate in relation to the crypto will be quite low. The interest rate becomes popular when the pool gains popularity.

Are there minimum or maximum loan amounts for crypto?

Yes, each lending and borrowing platform has its own minimum and maximum borrowing amount. While minimum loan amounts may be as low as $1,000, maximum amounts may be as high as millions.

• Investors can earn interest when they lend out crypto assets.

• DeFi is anonymous and decentralized since it is built on the blockchain.

• Lending pools remain one of the common ways to generate interest on crypto assets.

• By over-collateralizing their loans, borrowers can protect their collateral against sudden price drops.

To understand how DeFi loans work, assume an investor plans to borrow ETH from a liquidity pool that contains ETH/DAI trading pairs. This means to access one ETH, the borrower will deposit some DAI that is slightly above the value of one ETH via a smart contract.

At the point of repayment, the borrower reclaims the original value of DAI deposited in the pool. But if the value of the ETH drops before it is repaid or the borrower defaults, the collateral can be liquidated by a certain percentage.

Types of DeFi Loans

There are four types of crypto loans and they include:

• Collateralized loans: These are the most common types of loans and work such that deposited cryptocurrency is used as collateral for the loan. In some protocols, over-collateralization is required so that borrowers can access only a specific percentage of the deposited collateral, usually below 90% of the loan-to-value.

• Uncollateralized loans: Though not popular, uncollateralized loans operate the same way as personal loans. To qualify, borrowers must fill out a loan application form, verify their identity and complete their creditworthiness review. These loans pose a great risk to lending institutions because the borrowers do not provide collateral that can be liquidated if the borrower defaults.

• Crypto line of credit: Some crypto platforms now offer a cryptocurrency line of credit, rather than following the traditional loan pathway. The crypto line of credit is a collateralized loan where users borrow up to a certain percentage of deposited collateral. These loans come with a set of repayment terms and users only pay interest on funds withdrawn.

• Flash loans: Flash loans are common in most cryptocurrency exchanges because these loans are borrowed and repaid in the same transaction. These loans are extremely risky and often used to take advantage of arbitrage opportunities in the market, such that a user can buy crypto at a lower price in one market and instantly sell at a higher price in another.

What Do Borrowers Use DeFi Loans for?

Just like traditional banks, borrowers have the right to use their loan proceeds however they deem fit. The same goes for DeFi. When a borrower borrows against crypto, the lender will fund the borrower’s wallet with the loan. However, there are specific use cases for crypto loans and they include:

• Buying more crypto: When users borrow against their crypto, they get more cash that can be used to buy more crypto assets. This way, investors can “buy the dip” without using their personal funds to add to their crypto portfolio. Even if the crypto market suddenly falls, the coins that investors have added to their portfolios will be used to meet margin calls in the lending platform.

• Crypto real estate mortgage: Investors can use borrowed crypto assets to acquire real estate or other rental properties, allowing them to retain their crypto assets and also enjoy the proceeds of their real estate investment. This also allows the borrower to maintain diverse investment portfolios such as real estate and crypto.

What are the Requirements to Access DeFi Loans?

Besides having some tokens which can be used as collateral, there are other requirements borrowers must meet to access DeFi Loans. These requirements are briefly explained below.

• Eligible collateral

To access crypto loans, it is essential to set aside a specific number of tokens that will serve as a form of collateral. The collateral is what determines the amount of coins a borrower can access. Unlike traditional banking where the credit score of borrowers is considered, DeFi uses the collateral deposited to determine the amount of loan the borrower gets. This entire process makes underwriting quick and simple.

Benefits and Risks of Crypto Loans.

Crypto loans come with their own risks and benefits, indicating that while DeFi has some unique advantages that help it thrive in the crypto industry, it may just not be best proved by crypto lending.

Benefits of Crypto Loans

The benefits of crypto loans are far-reaching and include:

• Rapid origination: Unlike traditional finance, crypto loans are swift and accessible by all. There are rarely credit checks or credit histories. DeFi lenders often offer flexible terms and low fees compared to what is obtainable in traditional finance.

• More credit access: Borrowers do not need to have traditional bank accounts to have access to crypto loans. Since one-third of the world’s population remains unbanked, DeFi makes it easier for the unbanked to have access to crypto loans.

• Retention of crypto assets: When borrowers gain access to crypto loans, they necessarily do not have to sell their crypto. They can get back their coins as soon as the loan is repaid.

• Varying loan terms: Crypto loan terms vary between seven days to 12 months.

• Diverse use case: Crypto loans have various use cases. They can be used to purchase more crypto or acquire real estate properties.

Risks of Crypto Loans

While crypto loans have so many advantages, certain risks apply. They include

• Margin calls: When a borrower’s collateral assets decline rapidly, there is a tendency for the loan to reach a liquidation threshold. This is why borrowers are also required to deposit more collateral.
• Cyber attacks: The crypto industry can be prone to security breaches and this can be a major setback to borrowers whose crypto custody has been temporarily transferred to the platform. Borrowers face the risk of losing their tokens should a hack occur.

Top DeFi Lending and Borrowing Protocols

There are a lot of DeFi lending and borrowing platforms in the cryptocurrency ecosystem. Some of them include Aave, MakerDAO, Compound, etc. 

Aave

Aave is an open-source decentralized protocol that offers users access to liquidity pools where they can lend their tokens to others in return for interest. This platform offers varying interest rates for different yields and interest rates vary for each token.

The interest rates paid to lenders often range around 1% and 3%. While interest rates change regularly, some tokens are associated with much higher yields.

Some reasons to choose Aave include:

• Flexible interest options as the rates can be fixed or floating.

• Borrowing can somewhat be flexible as Aave also offers flash loans.

• Aave offers a risk framework (A+ to D-) that displays the rating for various assets on the platform.

• Nexus Mutual offers loan insurance on Aave.

Interest rate: Fixed or variable

Loan types: Custom repayment schedules.

Supported collateralized assets: BTC, ETH, MKR, USDC, etc.

Supported borrower assets: WBTC, USDC, MKR, etc.

Loan to value range: 35 to 80%

Compound

Compound is another DeFi protocol with liquidity pools for different assets. When a user lends tokens, they go into the liquidity pools and are merged with other users’ tokens. Borrowers then assess the liquidity pools and later pay what was borrowed with interest rates.

Compound allows users to earn interest in the same token they provide to the lending pool. With interest rates being fixed or variable, earnings differ with tokens.

Below are some features of Compound:

• Lenders earn interest in the same token that was offered to the liquidity pool.

• Loans can be insured using Nexus Mutual.

Interest rate: Variable

Loan types: Principal plus interest.

Supported collateralized assets: WBTC, ETH, DAI, etc.

Supported borrower assets: WBTC, ETH, YFI, etc.

Loan to value range: 65 to 85%

MakerDAO

With MakerDAO, borrowers and lenders combine to generate DAI, a stablecoin that is pegged to the U.S. dollar. The protocols network is built on the Ethereum network and offers users flexible interest rates that range from 0% to 8.75%.

Below are some reasons why lenders choose MakeDAO.

• In the event of volatility, users can use asset management tools such as DeFi Saver to ensure vaults are sufficiently collateralized.
• MakerDAO vaults can be easily tracked because they are integrated into other asset management tools.
• Decentralized Governance: a community of MKR token holders governs the Maker Protocol

Interest rate: Variable

Loan types: Principal plus interest, flash loans.

Supported collateralized assets: BTC, ETH, MATIC, etc.

Supported borrower assets: DAI

Loan to value range: 54 to 99%

Frequently Asked Questions (FAQs)

What do people use crypto loans for?

When borrowers gain access to crypto loans, they use them for several purposes such as arbitrage trading, purchasing more crypto, and diversifying their investment portfolio by investing in crypto mortgages.

Why do crypto borrowing interest rates change?

Interest rates often change in response to the utilization of underlying capital pools. Assuming a vast number of tokens have been earmarked for borrowing, the lending and borrowing rate in relation to the crypto will be quite low. The interest rate becomes popular when the pool gains popularity.

Are there minimum or maximum loan amounts for crypto?

Yes, each lending and borrowing platform has its own minimum and maximum borrowing amount. While minimum loan amounts may be as low as $1,000, maximum amounts may be as high as millions.

The mechanism behind lending and borrowing in DeFi allows holders of specific assets to lend them to others and earn interest on the loans. Similarly, borrowers of such loans must deposit some form of collateral that is above the value of the loans to protect against price fluctuations.

• A major feature of DeFi loans is its anonymity which allows just anyone to take out loans without disclosing their identities to third parties or even passing checks that are similar to what traditional banks have.

• This guide explores DeFi loans in their entirety and how they work.

What are DeFi Loans?

When crypto users interact with DeFi protocols to deposit collaterals and borrow digital coins, the borrowed assets are referred to as DeFi loans.

DeFi lending works such that users can access loans without the influence of any intermediary. Lending platforms often allow users to enlist their crypto tokens for lending purposes. With P2p methods, borrowers can access loans from decentralized platforms.

DeFi lending has seen steady growth since its inception due to the underlying technology which is the blockchain. This technology not only eliminates the need for external parties but also ensures that transactions are facilitated seamlessly without any form of obstruction.

Accessing loans on DeFi protocols is pretty easy and involves three basic steps – creating an account in a DeFi platform, creating a crypto wallet, and opening smart contracts. Unlike traditional banks that issue loans to a selected few, DeFi loans can be accessed by almost everyone. This is because DeFi has the main aim of “democratizing” finance, giving the unbanked population unlimited access to financial services.

Borrowers and lenders often benefit from DeFi lending as they have access to margin trading options and long-term investors can lend their assets and stand a chance to earn higher interest rates.

How Do DeFi Loans Work?

When investors store crypto assets in their wallets, they do not accrue any form of interest; the underlying value may only increase or decrease. This forms a reason why DeFi loans were developed.

DeFi loans work in a similar way to traditional finance systems. Investors will have to deposit their tokens into a liquidity pool which often exists in trading pairs such as ETH/USDT, ETH/USDC, or ETH/DAI. And to access loans, borrowers will have to deposit collateral (in the form of tokens) that is above the amount they plan to borrow. This excess amount often covers excessive price fluctuations.

Meanwhile, investors who loan their assets often generate interest on them. The entire lending and borrowing is process now being adopted because:

• Investors can earn interest when they lend out crypto assets.

• DeFi is anonymous and decentralized since it is built on the blockchain.

• Lending pools remain one of the common ways to generate interest on crypto assets.

• By over-collateralizing their loans, borrowers can protect their collateral against sudden price drops.

To understand how DeFi loans work, assume an investor plans to borrow ETH from a liquidity pool that contains ETH/DAI trading pairs. This means to access one ETH, the borrower will deposit some DAI that is slightly above the value of one ETH via a smart contract.

At the point of repayment, the borrower reclaims the original value of DAI deposited in the pool. But if the value of the ETH drops before it is repaid or the borrower defaults, the collateral can be liquidated by a certain percentage.

Types of DeFi Loans

There are four types of crypto loans and they include:

• Collateralized loans: These are the most common types of loans and work such that deposited cryptocurrency is used as collateral for the loan. In some protocols, over-collateralization is required so that borrowers can access only a specific percentage of the deposited collateral, usually below 90% of the loan-to-value.

• Uncollateralized loans: Though not popular, uncollateralized loans operate the same way as personal loans. To qualify, borrowers must fill out a loan application form, verify their identity and complete their creditworthiness review. These loans pose a great risk to lending institutions because the borrowers do not provide collateral that can be liquidated if the borrower defaults.

• Crypto line of credit: Some crypto platforms now offer a cryptocurrency line of credit, rather than following the traditional loan pathway. The crypto line of credit is a collateralized loan where users borrow up to a certain percentage of deposited collateral. These loans come with a set of repayment terms and users only pay interest on funds withdrawn.

• Flash loans: Flash loans are common in most cryptocurrency exchanges because these loans are borrowed and repaid in the same transaction. These loans are extremely risky and often used to take advantage of arbitrage opportunities in the market, such that a user can buy crypto at a lower price in one market and instantly sell at a higher price in another.

What Do Borrowers Use DeFi Loans for?

Just like traditional banks, borrowers have the right to use their loan proceeds however they deem fit. The same goes for DeFi. When a borrower borrows against crypto, the lender will fund the borrower’s wallet with the loan. However, there are specific use cases for crypto loans and they include:

• Buying more crypto: When users borrow against their crypto, they get more cash that can be used to buy more crypto assets. This way, investors can “buy the dip” without using their personal funds to add to their crypto portfolio. Even if the crypto market suddenly falls, the coins that investors have added to their portfolios will be used to meet margin calls in the lending platform.

• Crypto real estate mortgage: Investors can use borrowed crypto assets to acquire real estate or other rental properties, allowing them to retain their crypto assets and also enjoy the proceeds of their real estate investment. This also allows the borrower to maintain diverse investment portfolios such as real estate and crypto.

What are the Requirements to Access DeFi Loans?

Besides having some tokens which can be used as collateral, there are other requirements borrowers must meet to access DeFi Loans. These requirements are briefly explained below.

• Eligible collateral

To access crypto loans, it is essential to set aside a specific number of tokens that will serve as a form of collateral. The collateral is what determines the amount of coins a borrower can access. Unlike traditional banking where the credit score of borrowers is considered, DeFi uses the collateral deposited to determine the amount of loan the borrower gets. This entire process makes underwriting quick and simple.

Benefits and Risks of Crypto Loans.

Crypto loans come with their own risks and benefits, indicating that while DeFi has some unique advantages that help it thrive in the crypto industry, it may just not be best proved by crypto lending.

Benefits of Crypto Loans

The benefits of crypto loans are far-reaching and include:

• Rapid origination: Unlike traditional finance, crypto loans are swift and accessible by all. There are rarely credit checks or credit histories. DeFi lenders often offer flexible terms and low fees compared to what is obtainable in traditional finance.

• More credit access: Borrowers do not need to have traditional bank accounts to have access to crypto loans. Since one-third of the world’s population remains unbanked, DeFi makes it easier for the unbanked to have access to crypto loans.

• Retention of crypto assets: When borrowers gain access to crypto loans, they necessarily do not have to sell their crypto. They can get back their coins as soon as the loan is repaid.

• Varying loan terms: Crypto loan terms vary between seven days to 12 months.

• Diverse use case: Crypto loans have various use cases. They can be used to purchase more crypto or acquire real estate properties.

Risks of Crypto Loans

While crypto loans have so many advantages, certain risks apply. They include

• Margin calls: When a borrower’s collateral assets decline rapidly, there is a tendency for the loan to reach a liquidation threshold. This is why borrowers are also required to deposit more collateral.
• Cyber attacks: The crypto industry can be prone to security breaches and this can be a major setback to borrowers whose crypto custody has been temporarily transferred to the platform. Borrowers face the risk of losing their tokens should a hack occur.

Top DeFi Lending and Borrowing Protocols

There are a lot of DeFi lending and borrowing platforms in the cryptocurrency ecosystem. Some of them include Aave, MakerDAO, Compound, etc. 

Aave

Aave is an open-source decentralized protocol that offers users access to liquidity pools where they can lend their tokens to others in return for interest. This platform offers varying interest rates for different yields and interest rates vary for each token.

The interest rates paid to lenders often range around 1% and 3%. While interest rates change regularly, some tokens are associated with much higher yields.

Some reasons to choose Aave include:

• Flexible interest options as the rates can be fixed or floating.

• Borrowing can somewhat be flexible as Aave also offers flash loans.

• Aave offers a risk framework (A+ to D-) that displays the rating for various assets on the platform.

• Nexus Mutual offers loan insurance on Aave.

Interest rate: Fixed or variable

Loan types: Custom repayment schedules.

Supported collateralized assets: BTC, ETH, MKR, USDC, etc.

Supported borrower assets: WBTC, USDC, MKR, etc.

Loan to value range: 35 to 80%

Compound

Compound is another DeFi protocol with liquidity pools for different assets. When a user lends tokens, they go into the liquidity pools and are merged with other users’ tokens. Borrowers then assess the liquidity pools and later pay what was borrowed with interest rates.

Compound allows users to earn interest in the same token they provide to the lending pool. With interest rates being fixed or variable, earnings differ with tokens.

Below are some features of Compound:

• Lenders earn interest in the same token that was offered to the liquidity pool.

• Loans can be insured using Nexus Mutual.

Interest rate: Variable

Loan types: Principal plus interest.

Supported collateralized assets: WBTC, ETH, DAI, etc.

Supported borrower assets: WBTC, ETH, YFI, etc.

Loan to value range: 65 to 85%

MakerDAO

With MakerDAO, borrowers and lenders combine to generate DAI, a stablecoin that is pegged to the U.S. dollar. The protocols network is built on the Ethereum network and offers users flexible interest rates that range from 0% to 8.75%.

Below are some reasons why lenders choose MakeDAO.

• In the event of volatility, users can use asset management tools such as DeFi Saver to ensure vaults are sufficiently collateralized.
• MakerDAO vaults can be easily tracked because they are integrated into other asset management tools.
• Decentralized Governance: a community of MKR token holders governs the Maker Protocol

Interest rate: Variable

Loan types: Principal plus interest, flash loans.

Supported collateralized assets: BTC, ETH, MATIC, etc.

Supported borrower assets: DAI

Loan to value range: 54 to 99%

Frequently Asked Questions (FAQs)

What do people use crypto loans for?

When borrowers gain access to crypto loans, they use them for several purposes such as arbitrage trading, purchasing more crypto, and diversifying their investment portfolio by investing in crypto mortgages.

Why do crypto borrowing interest rates change?

Interest rates often change in response to the utilization of underlying capital pools. Assuming a vast number of tokens have been earmarked for borrowing, the lending and borrowing rate in relation to the crypto will be quite low. The interest rate becomes popular when the pool gains popularity.

Are there minimum or maximum loan amounts for crypto?

Yes, each lending and borrowing platform has its own minimum and maximum borrowing amount. While minimum loan amounts may be as low as $1,000, maximum amounts may be as high as millions.

Decentralized finance (DeFi) is one of the fastest-growing sectors of the blockchain industry that uses tools which are also available in traditional finance, making them available to everyone. These tools include unlimited remittance, lending, and borrowing services.

• The mechanism behind lending and borrowing in DeFi allows holders of specific assets to lend them to others and earn interest on the loans. Similarly, borrowers of such loans must deposit some form of collateral that is above the value of the loans to protect against price fluctuations.

• A major feature of DeFi loans is its anonymity which allows just anyone to take out loans without disclosing their identities to third parties or even passing checks that are similar to what traditional banks have.

• This guide explores DeFi loans in their entirety and how they work.

What are DeFi Loans?

When crypto users interact with DeFi protocols to deposit collaterals and borrow digital coins, the borrowed assets are referred to as DeFi loans.

DeFi lending works such that users can access loans without the influence of any intermediary. Lending platforms often allow users to enlist their crypto tokens for lending purposes. With P2p methods, borrowers can access loans from decentralized platforms.

DeFi lending has seen steady growth since its inception due to the underlying technology which is the blockchain. This technology not only eliminates the need for external parties but also ensures that transactions are facilitated seamlessly without any form of obstruction.

Accessing loans on DeFi protocols is pretty easy and involves three basic steps – creating an account in a DeFi platform, creating a crypto wallet, and opening smart contracts. Unlike traditional banks that issue loans to a selected few, DeFi loans can be accessed by almost everyone. This is because DeFi has the main aim of “democratizing” finance, giving the unbanked population unlimited access to financial services.

Borrowers and lenders often benefit from DeFi lending as they have access to margin trading options and long-term investors can lend their assets and stand a chance to earn higher interest rates.

How Do DeFi Loans Work?

When investors store crypto assets in their wallets, they do not accrue any form of interest; the underlying value may only increase or decrease. This forms a reason why DeFi loans were developed.

DeFi loans work in a similar way to traditional finance systems. Investors will have to deposit their tokens into a liquidity pool which often exists in trading pairs such as ETH/USDT, ETH/USDC, or ETH/DAI. And to access loans, borrowers will have to deposit collateral (in the form of tokens) that is above the amount they plan to borrow. This excess amount often covers excessive price fluctuations.

Meanwhile, investors who loan their assets often generate interest on them. The entire lending and borrowing is process now being adopted because:

• Investors can earn interest when they lend out crypto assets.

• DeFi is anonymous and decentralized since it is built on the blockchain.

• Lending pools remain one of the common ways to generate interest on crypto assets.

• By over-collateralizing their loans, borrowers can protect their collateral against sudden price drops.

To understand how DeFi loans work, assume an investor plans to borrow ETH from a liquidity pool that contains ETH/DAI trading pairs. This means to access one ETH, the borrower will deposit some DAI that is slightly above the value of one ETH via a smart contract.

At the point of repayment, the borrower reclaims the original value of DAI deposited in the pool. But if the value of the ETH drops before it is repaid or the borrower defaults, the collateral can be liquidated by a certain percentage.

Types of DeFi Loans

There are four types of crypto loans and they include:

• Collateralized loans: These are the most common types of loans and work such that deposited cryptocurrency is used as collateral for the loan. In some protocols, over-collateralization is required so that borrowers can access only a specific percentage of the deposited collateral, usually below 90% of the loan-to-value.

• Uncollateralized loans: Though not popular, uncollateralized loans operate the same way as personal loans. To qualify, borrowers must fill out a loan application form, verify their identity and complete their creditworthiness review. These loans pose a great risk to lending institutions because the borrowers do not provide collateral that can be liquidated if the borrower defaults.

• Crypto line of credit: Some crypto platforms now offer a cryptocurrency line of credit, rather than following the traditional loan pathway. The crypto line of credit is a collateralized loan where users borrow up to a certain percentage of deposited collateral. These loans come with a set of repayment terms and users only pay interest on funds withdrawn.

• Flash loans: Flash loans are common in most cryptocurrency exchanges because these loans are borrowed and repaid in the same transaction. These loans are extremely risky and often used to take advantage of arbitrage opportunities in the market, such that a user can buy crypto at a lower price in one market and instantly sell at a higher price in another.

What Do Borrowers Use DeFi Loans for?

Just like traditional banks, borrowers have the right to use their loan proceeds however they deem fit. The same goes for DeFi. When a borrower borrows against crypto, the lender will fund the borrower’s wallet with the loan. However, there are specific use cases for crypto loans and they include:

• Buying more crypto: When users borrow against their crypto, they get more cash that can be used to buy more crypto assets. This way, investors can “buy the dip” without using their personal funds to add to their crypto portfolio. Even if the crypto market suddenly falls, the coins that investors have added to their portfolios will be used to meet margin calls in the lending platform.

• Crypto real estate mortgage: Investors can use borrowed crypto assets to acquire real estate or other rental properties, allowing them to retain their crypto assets and also enjoy the proceeds of their real estate investment. This also allows the borrower to maintain diverse investment portfolios such as real estate and crypto.

What are the Requirements to Access DeFi Loans?

Besides having some tokens which can be used as collateral, there are other requirements borrowers must meet to access DeFi Loans. These requirements are briefly explained below.

• Eligible collateral

To access crypto loans, it is essential to set aside a specific number of tokens that will serve as a form of collateral. The collateral is what determines the amount of coins a borrower can access. Unlike traditional banking where the credit score of borrowers is considered, DeFi uses the collateral deposited to determine the amount of loan the borrower gets. This entire process makes underwriting quick and simple.

Benefits and Risks of Crypto Loans.

Crypto loans come with their own risks and benefits, indicating that while DeFi has some unique advantages that help it thrive in the crypto industry, it may just not be best proved by crypto lending.

Benefits of Crypto Loans

The benefits of crypto loans are far-reaching and include:

• Rapid origination: Unlike traditional finance, crypto loans are swift and accessible by all. There are rarely credit checks or credit histories. DeFi lenders often offer flexible terms and low fees compared to what is obtainable in traditional finance.

• More credit access: Borrowers do not need to have traditional bank accounts to have access to crypto loans. Since one-third of the world’s population remains unbanked, DeFi makes it easier for the unbanked to have access to crypto loans.

• Retention of crypto assets: When borrowers gain access to crypto loans, they necessarily do not have to sell their crypto. They can get back their coins as soon as the loan is repaid.

• Varying loan terms: Crypto loan terms vary between seven days to 12 months.

• Diverse use case: Crypto loans have various use cases. They can be used to purchase more crypto or acquire real estate properties.

Risks of Crypto Loans

While crypto loans have so many advantages, certain risks apply. They include

• Margin calls: When a borrower’s collateral assets decline rapidly, there is a tendency for the loan to reach a liquidation threshold. This is why borrowers are also required to deposit more collateral.
• Cyber attacks: The crypto industry can be prone to security breaches and this can be a major setback to borrowers whose crypto custody has been temporarily transferred to the platform. Borrowers face the risk of losing their tokens should a hack occur.

Top DeFi Lending and Borrowing Protocols

There are a lot of DeFi lending and borrowing platforms in the cryptocurrency ecosystem. Some of them include Aave, MakerDAO, Compound, etc. 

Aave

Aave is an open-source decentralized protocol that offers users access to liquidity pools where they can lend their tokens to others in return for interest. This platform offers varying interest rates for different yields and interest rates vary for each token.

The interest rates paid to lenders often range around 1% and 3%. While interest rates change regularly, some tokens are associated with much higher yields.

Some reasons to choose Aave include:

• Flexible interest options as the rates can be fixed or floating.

• Borrowing can somewhat be flexible as Aave also offers flash loans.

• Aave offers a risk framework (A+ to D-) that displays the rating for various assets on the platform.

• Nexus Mutual offers loan insurance on Aave.

Interest rate: Fixed or variable

Loan types: Custom repayment schedules.

Supported collateralized assets: BTC, ETH, MKR, USDC, etc.

Supported borrower assets: WBTC, USDC, MKR, etc.

Loan to value range: 35 to 80%

Compound

Compound is another DeFi protocol with liquidity pools for different assets. When a user lends tokens, they go into the liquidity pools and are merged with other users’ tokens. Borrowers then assess the liquidity pools and later pay what was borrowed with interest rates.

Compound allows users to earn interest in the same token they provide to the lending pool. With interest rates being fixed or variable, earnings differ with tokens.

Below are some features of Compound:

• Lenders earn interest in the same token that was offered to the liquidity pool.

• Loans can be insured using Nexus Mutual.

Interest rate: Variable

Loan types: Principal plus interest.

Supported collateralized assets: WBTC, ETH, DAI, etc.

Supported borrower assets: WBTC, ETH, YFI, etc.

Loan to value range: 65 to 85%

MakerDAO

With MakerDAO, borrowers and lenders combine to generate DAI, a stablecoin that is pegged to the U.S. dollar. The protocols network is built on the Ethereum network and offers users flexible interest rates that range from 0% to 8.75%.

Below are some reasons why lenders choose MakeDAO.

• In the event of volatility, users can use asset management tools such as DeFi Saver to ensure vaults are sufficiently collateralized.
• MakerDAO vaults can be easily tracked because they are integrated into other asset management tools.
• Decentralized Governance: a community of MKR token holders governs the Maker Protocol

Interest rate: Variable

Loan types: Principal plus interest, flash loans.

Supported collateralized assets: BTC, ETH, MATIC, etc.

Supported borrower assets: DAI

Loan to value range: 54 to 99%

Frequently Asked Questions (FAQs)

What do people use crypto loans for?

When borrowers gain access to crypto loans, they use them for several purposes such as arbitrage trading, purchasing more crypto, and diversifying their investment portfolio by investing in crypto mortgages.

Why do crypto borrowing interest rates change?

Interest rates often change in response to the utilization of underlying capital pools. Assuming a vast number of tokens have been earmarked for borrowing, the lending and borrowing rate in relation to the crypto will be quite low. The interest rate becomes popular when the pool gains popularity.

Are there minimum or maximum loan amounts for crypto?

Yes, each lending and borrowing platform has its own minimum and maximum borrowing amount. While minimum loan amounts may be as low as $1,000, maximum amounts may be as high as millions.

• Decentralized finance (DeFi) is one of the fastest-growing sectors of the blockchain industry that uses tools which are also available in traditional finance, making them available to everyone. These tools include unlimited remittance, lending, and borrowing services.

• The mechanism behind lending and borrowing in DeFi allows holders of specific assets to lend them to others and earn interest on the loans. Similarly, borrowers of such loans must deposit some form of collateral that is above the value of the loans to protect against price fluctuations.

• A major feature of DeFi loans is its anonymity which allows just anyone to take out loans without disclosing their identities to third parties or even passing checks that are similar to what traditional banks have.

• This guide explores DeFi loans in their entirety and how they work.

What are DeFi Loans?

When crypto users interact with DeFi protocols to deposit collaterals and borrow digital coins, the borrowed assets are referred to as DeFi loans.

DeFi lending works such that users can access loans without the influence of any intermediary. Lending platforms often allow users to enlist their crypto tokens for lending purposes. With P2p methods, borrowers can access loans from decentralized platforms.

DeFi lending has seen steady growth since its inception due to the underlying technology which is the blockchain. This technology not only eliminates the need for external parties but also ensures that transactions are facilitated seamlessly without any form of obstruction.

Accessing loans on DeFi protocols is pretty easy and involves three basic steps – creating an account in a DeFi platform, creating a crypto wallet, and opening smart contracts. Unlike traditional banks that issue loans to a selected few, DeFi loans can be accessed by almost everyone. This is because DeFi has the main aim of “democratizing” finance, giving the unbanked population unlimited access to financial services.

Borrowers and lenders often benefit from DeFi lending as they have access to margin trading options and long-term investors can lend their assets and stand a chance to earn higher interest rates.

How Do DeFi Loans Work?

When investors store crypto assets in their wallets, they do not accrue any form of interest; the underlying value may only increase or decrease. This forms a reason why DeFi loans were developed.

DeFi loans work in a similar way to traditional finance systems. Investors will have to deposit their tokens into a liquidity pool which often exists in trading pairs such as ETH/USDT, ETH/USDC, or ETH/DAI. And to access loans, borrowers will have to deposit collateral (in the form of tokens) that is above the amount they plan to borrow. This excess amount often covers excessive price fluctuations.

Meanwhile, investors who loan their assets often generate interest on them. The entire lending and borrowing is process now being adopted because:

• Investors can earn interest when they lend out crypto assets.

• DeFi is anonymous and decentralized since it is built on the blockchain.

• Lending pools remain one of the common ways to generate interest on crypto assets.

• By over-collateralizing their loans, borrowers can protect their collateral against sudden price drops.

To understand how DeFi loans work, assume an investor plans to borrow ETH from a liquidity pool that contains ETH/DAI trading pairs. This means to access one ETH, the borrower will deposit some DAI that is slightly above the value of one ETH via a smart contract.

At the point of repayment, the borrower reclaims the original value of DAI deposited in the pool. But if the value of the ETH drops before it is repaid or the borrower defaults, the collateral can be liquidated by a certain percentage.

Types of DeFi Loans

There are four types of crypto loans and they include:

• Collateralized loans: These are the most common types of loans and work such that deposited cryptocurrency is used as collateral for the loan. In some protocols, over-collateralization is required so that borrowers can access only a specific percentage of the deposited collateral, usually below 90% of the loan-to-value.

• Uncollateralized loans: Though not popular, uncollateralized loans operate the same way as personal loans. To qualify, borrowers must fill out a loan application form, verify their identity and complete their creditworthiness review. These loans pose a great risk to lending institutions because the borrowers do not provide collateral that can be liquidated if the borrower defaults.

• Crypto line of credit: Some crypto platforms now offer a cryptocurrency line of credit, rather than following the traditional loan pathway. The crypto line of credit is a collateralized loan where users borrow up to a certain percentage of deposited collateral. These loans come with a set of repayment terms and users only pay interest on funds withdrawn.

• Flash loans: Flash loans are common in most cryptocurrency exchanges because these loans are borrowed and repaid in the same transaction. These loans are extremely risky and often used to take advantage of arbitrage opportunities in the market, such that a user can buy crypto at a lower price in one market and instantly sell at a higher price in another.

What Do Borrowers Use DeFi Loans for?

Just like traditional banks, borrowers have the right to use their loan proceeds however they deem fit. The same goes for DeFi. When a borrower borrows against crypto, the lender will fund the borrower’s wallet with the loan. However, there are specific use cases for crypto loans and they include:

• Buying more crypto: When users borrow against their crypto, they get more cash that can be used to buy more crypto assets. This way, investors can “buy the dip” without using their personal funds to add to their crypto portfolio. Even if the crypto market suddenly falls, the coins that investors have added to their portfolios will be used to meet margin calls in the lending platform.

• Crypto real estate mortgage: Investors can use borrowed crypto assets to acquire real estate or other rental properties, allowing them to retain their crypto assets and also enjoy the proceeds of their real estate investment. This also allows the borrower to maintain diverse investment portfolios such as real estate and crypto.

What are the Requirements to Access DeFi Loans?

Besides having some tokens which can be used as collateral, there are other requirements borrowers must meet to access DeFi Loans. These requirements are briefly explained below.

• Eligible collateral

To access crypto loans, it is essential to set aside a specific number of tokens that will serve as a form of collateral. The collateral is what determines the amount of coins a borrower can access. Unlike traditional banking where the credit score of borrowers is considered, DeFi uses the collateral deposited to determine the amount of loan the borrower gets. This entire process makes underwriting quick and simple.

Benefits and Risks of Crypto Loans.

Crypto loans come with their own risks and benefits, indicating that while DeFi has some unique advantages that help it thrive in the crypto industry, it may just not be best proved by crypto lending.

Benefits of Crypto Loans

The benefits of crypto loans are far-reaching and include:

• Rapid origination: Unlike traditional finance, crypto loans are swift and accessible by all. There are rarely credit checks or credit histories. DeFi lenders often offer flexible terms and low fees compared to what is obtainable in traditional finance.

• More credit access: Borrowers do not need to have traditional bank accounts to have access to crypto loans. Since one-third of the world’s population remains unbanked, DeFi makes it easier for the unbanked to have access to crypto loans.

• Retention of crypto assets: When borrowers gain access to crypto loans, they necessarily do not have to sell their crypto. They can get back their coins as soon as the loan is repaid.

• Varying loan terms: Crypto loan terms vary between seven days to 12 months.

• Diverse use case: Crypto loans have various use cases. They can be used to purchase more crypto or acquire real estate properties.

Risks of Crypto Loans

While crypto loans have so many advantages, certain risks apply. They include

• Margin calls: When a borrower’s collateral assets decline rapidly, there is a tendency for the loan to reach a liquidation threshold. This is why borrowers are also required to deposit more collateral.
• Cyber attacks: The crypto industry can be prone to security breaches and this can be a major setback to borrowers whose crypto custody has been temporarily transferred to the platform. Borrowers face the risk of losing their tokens should a hack occur.

Top DeFi Lending and Borrowing Protocols

There are a lot of DeFi lending and borrowing platforms in the cryptocurrency ecosystem. Some of them include Aave, MakerDAO, Compound, etc. 

Aave

Aave is an open-source decentralized protocol that offers users access to liquidity pools where they can lend their tokens to others in return for interest. This platform offers varying interest rates for different yields and interest rates vary for each token.

The interest rates paid to lenders often range around 1% and 3%. While interest rates change regularly, some tokens are associated with much higher yields.

Some reasons to choose Aave include:

• Flexible interest options as the rates can be fixed or floating.

• Borrowing can somewhat be flexible as Aave also offers flash loans.

• Aave offers a risk framework (A+ to D-) that displays the rating for various assets on the platform.

• Nexus Mutual offers loan insurance on Aave.

Interest rate: Fixed or variable

Loan types: Custom repayment schedules.

Supported collateralized assets: BTC, ETH, MKR, USDC, etc.

Supported borrower assets: WBTC, USDC, MKR, etc.

Loan to value range: 35 to 80%

Compound

Compound is another DeFi protocol with liquidity pools for different assets. When a user lends tokens, they go into the liquidity pools and are merged with other users’ tokens. Borrowers then assess the liquidity pools and later pay what was borrowed with interest rates.

Compound allows users to earn interest in the same token they provide to the lending pool. With interest rates being fixed or variable, earnings differ with tokens.

Below are some features of Compound:

• Lenders earn interest in the same token that was offered to the liquidity pool.

• Loans can be insured using Nexus Mutual.

Interest rate: Variable

Loan types: Principal plus interest.

Supported collateralized assets: WBTC, ETH, DAI, etc.

Supported borrower assets: WBTC, ETH, YFI, etc.

Loan to value range: 65 to 85%

MakerDAO

With MakerDAO, borrowers and lenders combine to generate DAI, a stablecoin that is pegged to the U.S. dollar. The protocols network is built on the Ethereum network and offers users flexible interest rates that range from 0% to 8.75%.

Below are some reasons why lenders choose MakeDAO.

• In the event of volatility, users can use asset management tools such as DeFi Saver to ensure vaults are sufficiently collateralized.
• MakerDAO vaults can be easily tracked because they are integrated into other asset management tools.
• Decentralized Governance: a community of MKR token holders governs the Maker Protocol

Interest rate: Variable

Loan types: Principal plus interest, flash loans.

Supported collateralized assets: BTC, ETH, MATIC, etc.

Supported borrower assets: DAI

Loan to value range: 54 to 99%

Frequently Asked Questions (FAQs)

What do people use crypto loans for?

When borrowers gain access to crypto loans, they use them for several purposes such as arbitrage trading, purchasing more crypto, and diversifying their investment portfolio by investing in crypto mortgages.

Why do crypto borrowing interest rates change?

Interest rates often change in response to the utilization of underlying capital pools. Assuming a vast number of tokens have been earmarked for borrowing, the lending and borrowing rate in relation to the crypto will be quite low. The interest rate becomes popular when the pool gains popularity.

Are there minimum or maximum loan amounts for crypto?

Yes, each lending and borrowing platform has its own minimum and maximum borrowing amount. While minimum loan amounts may be as low as $1,000, maximum amounts may be as high as millions.

• Decentralized finance (DeFi) is one of the fastest-growing sectors of the blockchain industry that uses tools which are also available in traditional finance, making them available to everyone. These tools include unlimited remittance, lending, and borrowing services.

• The mechanism behind lending and borrowing in DeFi allows holders of specific assets to lend them to others and earn interest on the loans. Similarly, borrowers of such loans must deposit some form of collateral that is above the value of the loans to protect against price fluctuations.

• A major feature of DeFi loans is its anonymity which allows just anyone to take out loans without disclosing their identities to third parties or even passing checks that are similar to what traditional banks have.

• This guide explores DeFi loans in their entirety and how they work.

What are DeFi Loans?

When crypto users interact with DeFi protocols to deposit collaterals and borrow digital coins, the borrowed assets are referred to as DeFi loans.

DeFi lending works such that users can access loans without the influence of any intermediary. Lending platforms often allow users to enlist their crypto tokens for lending purposes. With P2p methods, borrowers can access loans from decentralized platforms.

DeFi lending has seen steady growth since its inception due to the underlying technology which is the blockchain. This technology not only eliminates the need for external parties but also ensures that transactions are facilitated seamlessly without any form of obstruction.

Accessing loans on DeFi protocols is pretty easy and involves three basic steps – creating an account in a DeFi platform, creating a crypto wallet, and opening smart contracts. Unlike traditional banks that issue loans to a selected few, DeFi loans can be accessed by almost everyone. This is because DeFi has the main aim of “democratizing” finance, giving the unbanked population unlimited access to financial services.

Borrowers and lenders often benefit from DeFi lending as they have access to margin trading options and long-term investors can lend their assets and stand a chance to earn higher interest rates.

How Do DeFi Loans Work?

When investors store crypto assets in their wallets, they do not accrue any form of interest; the underlying value may only increase or decrease. This forms a reason why DeFi loans were developed.

DeFi loans work in a similar way to traditional finance systems. Investors will have to deposit their tokens into a liquidity pool which often exists in trading pairs such as ETH/USDT, ETH/USDC, or ETH/DAI. And to access loans, borrowers will have to deposit collateral (in the form of tokens) that is above the amount they plan to borrow. This excess amount often covers excessive price fluctuations.

Meanwhile, investors who loan their assets often generate interest on them. The entire lending and borrowing is process now being adopted because:

• Investors can earn interest when they lend out crypto assets.

• DeFi is anonymous and decentralized since it is built on the blockchain.

• Lending pools remain one of the common ways to generate interest on crypto assets.

• By over-collateralizing their loans, borrowers can protect their collateral against sudden price drops.

To understand how DeFi loans work, assume an investor plans to borrow ETH from a liquidity pool that contains ETH/DAI trading pairs. This means to access one ETH, the borrower will deposit some DAI that is slightly above the value of one ETH via a smart contract.

At the point of repayment, the borrower reclaims the original value of DAI deposited in the pool. But if the value of the ETH drops before it is repaid or the borrower defaults, the collateral can be liquidated by a certain percentage.

Types of DeFi Loans

There are four types of crypto loans and they include:

• Collateralized loans: These are the most common types of loans and work such that deposited cryptocurrency is used as collateral for the loan. In some protocols, over-collateralization is required so that borrowers can access only a specific percentage of the deposited collateral, usually below 90% of the loan-to-value.

• Uncollateralized loans: Though not popular, uncollateralized loans operate the same way as personal loans. To qualify, borrowers must fill out a loan application form, verify their identity and complete their creditworthiness review. These loans pose a great risk to lending institutions because the borrowers do not provide collateral that can be liquidated if the borrower defaults.

• Crypto line of credit: Some crypto platforms now offer a cryptocurrency line of credit, rather than following the traditional loan pathway. The crypto line of credit is a collateralized loan where users borrow up to a certain percentage of deposited collateral. These loans come with a set of repayment terms and users only pay interest on funds withdrawn.

• Flash loans: Flash loans are common in most cryptocurrency exchanges because these loans are borrowed and repaid in the same transaction. These loans are extremely risky and often used to take advantage of arbitrage opportunities in the market, such that a user can buy crypto at a lower price in one market and instantly sell at a higher price in another.

What Do Borrowers Use DeFi Loans for?

Just like traditional banks, borrowers have the right to use their loan proceeds however they deem fit. The same goes for DeFi. When a borrower borrows against crypto, the lender will fund the borrower’s wallet with the loan. However, there are specific use cases for crypto loans and they include:

• Buying more crypto: When users borrow against their crypto, they get more cash that can be used to buy more crypto assets. This way, investors can “buy the dip” without using their personal funds to add to their crypto portfolio. Even if the crypto market suddenly falls, the coins that investors have added to their portfolios will be used to meet margin calls in the lending platform.

• Crypto real estate mortgage: Investors can use borrowed crypto assets to acquire real estate or other rental properties, allowing them to retain their crypto assets and also enjoy the proceeds of their real estate investment. This also allows the borrower to maintain diverse investment portfolios such as real estate and crypto.

What are the Requirements to Access DeFi Loans?

Besides having some tokens which can be used as collateral, there are other requirements borrowers must meet to access DeFi Loans. These requirements are briefly explained below.

• Eligible collateral

To access crypto loans, it is essential to set aside a specific number of tokens that will serve as a form of collateral. The collateral is what determines the amount of coins a borrower can access. Unlike traditional banking where the credit score of borrowers is considered, DeFi uses the collateral deposited to determine the amount of loan the borrower gets. This entire process makes underwriting quick and simple.

Benefits and Risks of Crypto Loans.

Crypto loans come with their own risks and benefits, indicating that while DeFi has some unique advantages that help it thrive in the crypto industry, it may just not be best proved by crypto lending.

Benefits of Crypto Loans

The benefits of crypto loans are far-reaching and include:

• Rapid origination: Unlike traditional finance, crypto loans are swift and accessible by all. There are rarely credit checks or credit histories. DeFi lenders often offer flexible terms and low fees compared to what is obtainable in traditional finance.

• More credit access: Borrowers do not need to have traditional bank accounts to have access to crypto loans. Since one-third of the world’s population remains unbanked, DeFi makes it easier for the unbanked to have access to crypto loans.

• Retention of crypto assets: When borrowers gain access to crypto loans, they necessarily do not have to sell their crypto. They can get back their coins as soon as the loan is repaid.

• Varying loan terms: Crypto loan terms vary between seven days to 12 months.

• Diverse use case: Crypto loans have various use cases. They can be used to purchase more crypto or acquire real estate properties.

Risks of Crypto Loans

While crypto loans have so many advantages, certain risks apply. They include

• Margin calls: When a borrower’s collateral assets decline rapidly, there is a tendency for the loan to reach a liquidation threshold. This is why borrowers are also required to deposit more collateral.
• Cyber attacks: The crypto industry can be prone to security breaches and this can be a major setback to borrowers whose crypto custody has been temporarily transferred to the platform. Borrowers face the risk of losing their tokens should a hack occur.

Top DeFi Lending and Borrowing Protocols

There are a lot of DeFi lending and borrowing platforms in the cryptocurrency ecosystem. Some of them include Aave, MakerDAO, Compound, etc. 

Aave

Aave is an open-source decentralized protocol that offers users access to liquidity pools where they can lend their tokens to others in return for interest. This platform offers varying interest rates for different yields and interest rates vary for each token.

The interest rates paid to lenders often range around 1% and 3%. While interest rates change regularly, some tokens are associated with much higher yields.

Some reasons to choose Aave include:

• Flexible interest options as the rates can be fixed or floating.

• Borrowing can somewhat be flexible as Aave also offers flash loans.

• Aave offers a risk framework (A+ to D-) that displays the rating for various assets on the platform.

• Nexus Mutual offers loan insurance on Aave.

Interest rate: Fixed or variable

Loan types: Custom repayment schedules.

Supported collateralized assets: BTC, ETH, MKR, USDC, etc.

Supported borrower assets: WBTC, USDC, MKR, etc.

Loan to value range: 35 to 80%

Compound

Compound is another DeFi protocol with liquidity pools for different assets. When a user lends tokens, they go into the liquidity pools and are merged with other users’ tokens. Borrowers then assess the liquidity pools and later pay what was borrowed with interest rates.

Compound allows users to earn interest in the same token they provide to the lending pool. With interest rates being fixed or variable, earnings differ with tokens.

Below are some features of Compound:

• Lenders earn interest in the same token that was offered to the liquidity pool.

• Loans can be insured using Nexus Mutual.

Interest rate: Variable

Loan types: Principal plus interest.

Supported collateralized assets: WBTC, ETH, DAI, etc.

Supported borrower assets: WBTC, ETH, YFI, etc.

Loan to value range: 65 to 85%

MakerDAO

With MakerDAO, borrowers and lenders combine to generate DAI, a stablecoin that is pegged to the U.S. dollar. The protocols network is built on the Ethereum network and offers users flexible interest rates that range from 0% to 8.75%.

Below are some reasons why lenders choose MakeDAO.

• In the event of volatility, users can use asset management tools such as DeFi Saver to ensure vaults are sufficiently collateralized.
• MakerDAO vaults can be easily tracked because they are integrated into other asset management tools.
• Decentralized Governance: a community of MKR token holders governs the Maker Protocol

Interest rate: Variable

Loan types: Principal plus interest, flash loans.

Supported collateralized assets: BTC, ETH, MATIC, etc.

Supported borrower assets: DAI

Loan to value range: 54 to 99%

Frequently Asked Questions (FAQs)

What do people use crypto loans for?

When borrowers gain access to crypto loans, they use them for several purposes such as arbitrage trading, purchasing more crypto, and diversifying their investment portfolio by investing in crypto mortgages.

Why do crypto borrowing interest rates change?

Interest rates often change in response to the utilization of underlying capital pools. Assuming a vast number of tokens have been earmarked for borrowing, the lending and borrowing rate in relation to the crypto will be quite low. The interest rate becomes popular when the pool gains popularity.

Are there minimum or maximum loan amounts for crypto?

Yes, each lending and borrowing platform has its own minimum and maximum borrowing amount. While minimum loan amounts may be as low as $1,000, maximum amounts may be as high as millions.