A new concept that is gaining momentum in the world of digital currencies is that of cryptocurrency lending, a phenomenon that is gaining attention in the wake of the increasingly rapid and unchallenged rise of the crypto world. This new type of loan is taking on increasingly interesting dimensions, but it is a reality that is still being defined. So let’s try to understand how cryptocurrency loans work and which are the best platforms in circulation to offer this service.
What is a Cryptocurrency Loan: Crypto Lending
Before analyzing the functional characteristics of cryptocurrency loans, it is good to clarify what it is. A cryptocurrency loan, better known as crypto lending, is a new form of financing in which the borrower obtains a loan in current currency (fiat) or stablecoin using their crypto assets as collateral, i.e. as collateral, at an agreed interest rate. with the provider.
Alternatively, another form of crypto loan requires the lender to lend their digital currencies, accruing interest and increasing the number of tokens in their possession over time.
Based on the purpose of the lending, cryptocurrency loans are divided into:
- Speculative Lending; which consists of borrowing cryptocurrencies from a broker to trade with leverage;
- Social Lending; a form of a loan between individuals in which the lender bears a percentage of the applicant’s business risk.
How does it work?
How crypto lending works is quite simple. On the one hand, we have a subject who requests a loan and consequently becomes a borrower, depositing on the platform some cryptocurrencies that will constitute the collateral, that is the equivalent value that constitutes the guarantee of the debt. On the other hand, we have an investor who is willing to lend his savings in exchange for an annuity.
Interest rates vary depending on the supply and demand of the asset on the crypto loan platform.
Advantages and Risks
The benefits of cryptocurrency loans to Nigerians are manifold. First of all, the platforms that integrate crypto lending activities operate with protocols accessible by anyone, without too much KYC (know your customer) procedures or custody, and do not ask for all the documents that a bank would ask for.
Another element in favor of cryptographic loans is represented by the possibility of using the tokens in stock by accruing interest. Finally, it is a way to obtain loans in fiat currencies by leaving cryptographic collateral as collateral, without having to pledge your personal assets.
As for the disadvantages of cryptocurrency lending, it is important to remember that the borrower takes the risk of having to provide liquidity should the collateral fall below the “safe zone”. Then there is the technological risk connected to the possible attack of the platform by hackers through bugs or exploits. Another risk is linked to the fact that crypto lending platforms are more recent and riskier than traditional banks, which are instead highly regulated.
The Best Platforms for Nigerians to Apply for a Crypto Loan
To access cryptocurrency loans, you need to create an account on one of the platforms that offer this service, showing your documents to confirm your identity. These platforms are divided into two types: CeFi and Defi. The former act more like traditional fintech companies, while the latter relies on smart contracts. Here are some of the best platforms currently available.
Our first choice could only be Binance, the largest cryptocurrency exchange in the world founded in 2017 by Chinese developer Changpeng Zhao.
Thanks to the Binance Loans feature, Nigerian users registered on the platform can take out crypto loans secured by their cryptocurrency assets. This translates into the possibility of increasing the balance of one’s tokens regardless of the market trend.
Binance supports the lending of various cryptocurrencies, including BNB (Binance Coin), BUSD, USDT, and much more. The loan terms range from a minimum of 7 days to a maximum of 180 days.
Another well-known cryptocurrency loan exchange is Crypto.com, one of the first companies to bring blockchain technology closer to the traditional finance sector.
The platform’s Lending feature allows you to obtain digital currency loans to use to meet your financial needs or for margin trading on Crypto.com Exchange.
Official site: www.crypto.com
Another famous platform that offers this type of service is Coinbase, one of the most important companies that buys, sells, and holds cryptocurrencies on behalf of customers.
The exchange, based in San Francisco, offers users a function that allows every one of its users, Nigerians inclusive, to earn interest by lending their cryptocurrencies to the Compound app, a decentralized finance tool. At the moment, however, this feature only works with Dai, a stablecoin whose value is linked to that of the US dollar.
Official site: www.coinbase.com
Among the best platforms that integrate crypto lending activity, there is also Nexo.
The platform allows its users to apply for a loan by issuing several cryptocurrencies as collateral and to lend their digital or fiat currencies receiving an annual return.
What considerations to make about this innovative type of loan that faces the world of cryptocurrencies? While not exempt from the high volatility that characterizes the cryptocurrency market, we can agree that cryptocurrency loans are a great opportunity for users who have so far only had two options of choice regarding the use of digital currencies: keep them on the wallet or use them for trading.