What’s Cryptocurrency Collateral?
Collateral, as we know it in the traditional banking system, can be something of value that a borrower gives to the lender (in this case, the bank) as a pledge to secure repayment of the loan.
In digital currency, the borrower pledges crypto collateral to the lender in exchange for stablecoin or fiat loans. It can also work the other way around – using fiat or stablecoin to obtain cryptocurrency loans.
Keep in mind that crypto-lending has opened up opportunities for institutions, businesses, and a host of others. Thanks to new forms of execution made possible by blockchain, distributed peer-to-peer networks have helped in knocking down transaction costs as well as interest rates on loans.
A lot of people want to make use of their crypto assets to obtain stablecoin or fiat loans because they want to get more value for their digital assets – savers are not left out as well because they also want interest in their crypto assets. A collateralized crypto loan would grant you access to leverage the value of your crypto assets (whether Bitcoin or Ethereum) without having to sell them.
Why borrow and lend Crypto? Are there any advantages?
Most people are still left in the dark as to why there’s a need to borrow and lend crypto, and they’ll be brought to light after realizing the benefits crypto-lending has to offer.
When compared to traditional banking, the number of documents you have to sign, the outrageous interest rates you get on loans, cryptocurrency beats traditional banking hands down. Blockchain would assign the loan agreement and interest rates algorithmically for you, thereby cutting down on the interest rates on the loans obtained.
Faster than traditional banks
Unlike traditional banks, where it would take days, or even weeks to get your loan approved and ready for use, crypto loans are usually very much faster.
Your crypto loans can be approved in hours or latest, within a day as long as you have the required amount of crypto collateral to obtain your loan and your account is verified with a government-issued ID.
Crypto loan eliminates any form of middlemen or any other delays you would normally encounter when getting loans from financial institutions. Repayment of loans is usually much easier as well with crypto loans.
Credit score won’t be assessed
Certain people miss out on loans or are unable to get loans from financial institutions because their credit score is low or because they don’t have a financial history.
Crypto loans with collateral allow people that fall in these categories to be able to access loans when they pledge their crypto assets as collateral.
Even if you do not have a bank account, you can still get access to collateralized crypto loans. All you have to do is visit any crypto lending platform like CoinRabbit, pledge your crypto collateral and you’re good to go.
Flexible loans to suit your needs
Financial institutions do not provide the level of flexibility you’ll get when choosing the amount and terms for your loans.
When obtaining crypto loans, you’re allowed to be specific when choosing the amount and you can also choose your loan-to-value ratio (LTV) and how you want to be paid. Your loan amount however would largely be dependent on the value of your crypto collateral.
Safer than traditional banks
As long as the crypto-lending platform is very clear with the security measures they’ve put in place for their website, be rest assured that your crypto assets are safe.
Traditional banks sometimes misuse people’s funds and put in charges that can’t be explained thereby making transactions not as transparent as that of cryptocurrency.
Crypto loans without Collateral vs with Collateral?
Several people on the web are looking for how they can obtain crypto loans without collateral – which is not a bad thing by the way. There are also several things to consider while on this type of search.
Crypto loans without collateral are not as popular as collateralized crypto loans. This is because the crypto lender would have to bear the risk should the borrower default to reimburse the payment, or something goes wrong with the borrower’s investment with the crypto loan.
Another reason why collateralized crypto loans are more popular than crypto loans without collateral is the volatility of the cryptocurrency market. For example, say a lender gives a collateralized crypto loan to a borrower, then the value of the crypto collateral the borrower pledged decreases to a certain level, the lender can decide to liquidate a portion of the crypto collateral and work to bring back its value.
Although understandably, some people might not have crypto collateral but need cryptocurrency, it’s important to also consider the lender and the risk he or she would be taking by giving crypto loans without collateral. The cryptocurrency collateral serves as a means of reassurance that the borrower would pay back as agreed.
|Type||Risks||Market Volatility Impact|
|Crypto loan with collateral||Moderate||Lender decides for himself what to do during such market conditions|
|Crypto loan without collateral||Very high||Enormous, the Lender doesn’t have much choice|
How does collateral work in CoinRabbit?
CoinRabbit is a cryptocurrency lending platform that can give you access to the value of your crypto assets in less than 5 minutes with no credit checks or registration required.
Here’s how to go about it:
- Log on to CoinRabbit, choose your collateral amount
2. Confirm your phone number, choose where you would like to receive the loan (USDT TRC-20, USDT ERC-20 or USDC), and input your address
3. Send the collateral amount you entered to the address provided
4. Wait for a few minutes for the loan to be processed (this would normally take less than 5 minutes)
5. You’ll receive your loan instantly after confirmation is done.
Now that you have your USDT (or USDC) loan, you’re free to convert it to any form of currency you want.
The best part is you can pay back your loan at any time because you have an unlimited loan period. For you to get back crypto collateral, you’ll have to pay back the entire loan which is:
The initial amount of your loan + 14% annual interest (APR) + a small processing fee.
CoinRabbit offers you a low-interest rate, a low minimum loan amount, no monthly payments, no limits for loan sizes, and secure collateral storage and return. What more could you ask for?
You can also increase your loan size in case you want to, doing this will cause a decrease in your liquidation price as well.
On CoinRabbit, you get your loan at a 50% loan-to-value ratio (LTV). For example, if you drop 1 ETH as crypto collateral, you get a loan of 0.5 ETH in USDT. The reason for this is to reduce the risk of liquidation when the price of crypto assets drops down.
The 50% loan-to-value ratio (LTV) was put in place to make customers rest assured that their crypto collateral won’t be sold when the price drops by a certain percentage since we all already know how volatile the crypto market can be.
There are a lot of cryptocurrency lending platforms out there that require registration, monthly payments, limited loan payment periods, and so on. CoinRabbit has chosen to make life easier by creating a user-friendly platform that solves most of those issues thereby making it easier to obtain collateralized crypto loans.