Crypto Lending and Borrowing: What are Crypto Loans Even For?

Have you ever got a loan? Even if you haven’t, you’ve got to be familiar with the reason why people get them — they want to spend some money but don’t have it at the moment. 

Traditionally, loans have been issued by banks. These want to protect themselves from losing money in case a borrower cannot repay the loan — and they collect your data, make credit checks, require proof of income, and tons of other paperwork. Small loans can be issued fast, but when it comes to borrowing more money, approval can take days. 

Getting a loan in crypto solves most of these problems. Crypto lending issues loans in minutes with no credit checks and even without the identity confirmation — all you need is to provide collateral. In this guide, we will go through the reasons to get a crypto loan, explore why CeFi loans are a robust alternative to DeFi, and some exciting ways to spend your cryptocurrency loan on. 

Why crypto loans? 

The crypto adoption rate is yet far from perfect. Most of the car dealers, travel and real estate agencies, brokers, and other places where you could spend your loan, still haven’t got along with crypto. Now, you may be asking — why even bother yourself with cryptocurrency lending? Here are the reasons: 

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  • Crypto loans are instant. A loan in crypto is in many ways similar to the fiat one: this is a capital issued to you that you can start using immediately. But with crypto, you can access this loan in minutes irrespective of its size. And here’s why:
  • Crypto loans are permissionless. In comparison with banks, the only thing that a Bitcoin lending service needs from you is a sum of crypto that you can temporarily provide as collateral. You will no longer be limited by any banking restrictions, and lending depends only on how backed up your assets.
  • Accessible to anyone This is why cryptocurrency lending platforms don’t require credit checks and any documents. This is what makes them accessible to all the people in the world: even if you don’t have a credit history (or have a bad one) or even a bank account, you can get a loan. This makes it possible not to waste time on procedures that are useless for the client and remain anonymous.
  • Limitless. There are no limits on getting the loan you need. You can always come again and get a loan without any difficulties. Neither the amount nor the number of loans has any limits either. This is a huge advantage for people who do not want to deal with traditional banks and bureaucracy.

And finally, this is why they are limitless: your upper loan size depends only on the amount of crypto you can provide as collateral. If the loan-to-value ratio is 50%, you’d need to put up 1 BTC to get 13,000 USDT or USDC. Loan-to-value indicator is used by the lending services to protect themselves from losing funds.  

  • A crypto loan is a way to use your Bitcoin without spending it. Hodling crypto is cool, but sometimes we feel like using our stashes of Bitcoin — even though that may harm our long-term investment strategy. However, there’s no need for harm — getting a crypto loan is a way to profit from your crypto portfolio right now. 
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What are CeFi and DeFi loans? How are they different? 

In DeFi, loans are issued by the smart contract-based protocols which also store your collateral. These services are decentralized and peer-to-peer, which means they connect borrowers and lenders without intermediaries. 

Getting a loan in CeFi means there’s an organization that issues you some money and stores your collateral. This is how CoinRabbit works. By this moment, it may sound to you that DeFi loans have more perks: they are transparent, secured by blockchain technology, and intermediaries can’t do anything with your money. We’d even say, there’s a common belief about the infallibility of DeFi loans. 

However, the real picture is quite a bit different. Here are the reasons why DeFi loans are far away from being called trustworthy: 

  • Smart contracts are made by people, and they may have bugs that hackers use to steal money. DeFi protocols are no stranger to bugs, and hackers are constantly looking for them. Only this year, a decentralized lending protocol bZx has been hacked twice in a matter of days, and a similar project Value DeFi has lost $6 in a hacker attack. These were the so-called flash loans famous for processing the loan in one transaction. 
  • Since DeFi loans are fully blockchain-based and there’s no “central processor”, no one may help you out in any case. Inversely, at CoinRabbit, you always know that there’s a 24/7 support team that can resolve any issue. As an example, we can increase your loan size at any moment.  
What are CeFi and DeFi loans?
  • CeFi is a lot easier to use. In DeFi, you have to know what smart contracts are and how they work, all about self-managed crypto wallets, and more. In CeFi, you can get a loan without lengthy preparations using a user-friendly and intuitive interface. 
  • Genuine Bitcoin as collateral is possible in CeFi. Since most of the DeFi is based on Ethereum, you can’t operate there with Bitcoin. The best thing you could do is to exchange your Bitcoin for Wrapped Bitcoin — it was breaking news when wBTC was added as a collateral option in May this year on the Maker protocol. At CoinRabbit, doing this is not necessary — simply provide your live Bitcoin, and you’re good! Moreover, we will soon add fiat collateral options — a thing which could probably never be possible in DeFi. 

How can I use my crypto loan? 

  • Fulfill your dream without further delay. Buy anything that you’ve always wanted, but didn’t have enough money at hand to afford. Even if you can’t pay for it with crypto directly, mind that we issue loans in stablecoins — assets that can be easily swapped to USD and other fiat currencies. 
  • Invest or trade. USDT and USDC are compatible with a wide variety of assets and are accepted basically everywhere. When you trade, their stable price can serve as protection for your funds’ price fluctuation. If you invest in a high-yield project, repaying your loan might be much easier.
  • Arbitrage. Borrow on CoinRabbit at a 5% interest rate, and lend this crypto on a different service with a higher interest. The difference will be your profit. We will dedicate one of our further articles to this use case. 

Final word

By taking out a crypto loan, you’re making your crypto work for you. Bitcoin in your crypto wallet looks particularly cool in this bull run, but why simply look at it and enjoy the rising numbers? Provide it as collateral and explore all the opportunities of instant crypto loans. See here how much USDT or USDC you can get right now!