Besides, crypto lending platforms offer holders an opportunity to use their holdings as collateral to access fiat loans. Regardless of the way you plan on using these platforms, we suggest that you take the time to understand the fundamentals of crypto lending mechanisms before going all out to adopt their services. Hence, we have dedicated this review section to crypto loan platforms. Here, we will explore the core functions of these solutions and their benefits. Also, we will introduce you to factors that could help you pick the right ones as well as our list of the best crypto lending platforms offering services to participants.
What Are Crypto Lending Platforms
The concept of crypto loan has evolved over the years, as we have begun to see new variations that border on automated and trustless systems. Nevertheless, the concept still centers around depositing digital assets to sites where interested borrowers can access them and pay back with interests. Notwithstanding, it entails some technicalities and clauses that could seem evasive to people new to crypto lending terminologies. For one, you must understand interest rates, determine the compounding rates, and explore policies detailing how price fluctuations affect your earnings or its impact on collateralized assets.
Defining crypto lending platforms from the vantage point of borrowers is quite different from the above-stated description. To this set of crypto enthusiasts, a crypto lending platform offers more reasonable interest rates compared to what banks offer. Also, it enables a system, which helps them circumvent the need to exchange their crypto stash to fiat money whenever they want to expand their businesses or finance a project. Instead, all they need do is adopt a crypto loan service, deposit the required amount of cryptocurrency as collateral, and access fiat money. With this, it is clear that crypto holders do not just bypass the hassles of exchanging cryptocurrencies, they also offer a means to evade tax obligations imposed on crypto practitioners whenever they convert their holdings to fiat currencies.
As such, the concept of crypto loan caters to two distinct groups of clients with varying needs, and this has spurred the proliferation of services offering loaning facilities to crypto holders.
The Types of Crypto Lending Websites
The crypto lending service market houses solutions looking to infuse elements of innovation to the process of giving out crypto loans and offering income diversification services to crypto holders. While this is a given, there are three variations of crypto lending services based on the level of autonomy offered to users. They are centralized, semi-decentralized, and Defi crypto lending services.
Centralized Crypto Loan Platforms
In this variation, the service enabler has full control over loan matching, interest rates, the verification of loan contracts, and the payment of profits. Simply put, these loan services border on intermediate processes, which translates to high fees and inflexible service structure. On the upside, centralized crypto lending platforms are ideal for crypto holders who are not too keen on taking up the responsibility of negotiating contracts.
Semi-Decentralized Crypto Lending Platforms
Unlike the fully centralized loaning facilities, semi-decentralized lending services borders on a p2p framework that automates certain processes involved in giving out or receiving loans. This variation is becoming quite popular, as service providers often set up infrastructures that present users a degree of autonomy as regards lending or borrowing cryptocurrency or fiat money. In some cases, these platforms incorporate smart contracts to introduce an element of decentralization to their services. However, the platform still retains partial control over the operations of the lending system. It dictates interest rates, lockup periods, or matching criteria.
Decentralized or Defi Crypto Lending Networks
As it is with semi-decentralized crypto lending platforms, decentralized networks implement smart contracts to decentralize the process involved in disbursing settlements and carrying out the terms of a contract to the letter. Here, these networks incorporate a distributed model where users get to access full autonomy over their activities. Likewise, it promotes trustless systems that base credit scores on immutable and transparent information stored on blockchains and established through consensus. Moreover, a decentralized lending network allows users to set competitive rates. On the downside, this variation of lending facilities is not as popular as other models, which has limited the volume of processed loans and the probability of instantly finding suitable matches.
What Are the Benefits of Adopting A Crypto Lending Platform?
Lending cryptocurrency is ideal for crypto holders who have digital assets stashed away somewhere and would want to maximize the profits generated from long-term investment strategies. In other words, you could increase your earnings by making your crypto available to firms and individuals looking to borrow crypto and pay back with interests.
Also, you could benefit from these services by opting to receive loans at rates that are lower than what banks would normally offer you. Similarly, receiving fiat loans through crypto collaterals is a less expensive way of funding projects. This assertion stems from the fact that you get to bypass exchange fees. Note that you are obligated to report the profits and losses generated from crypto activities only when you exchange your digital assets to fiat money. And so, crypto lending facilities present a way of accessing fiat money without necessarily liquidating your assets and making yourself liable to tax rules.
What Are the Factors to Consider When Choosing A Crypto Lending Facility?
Having explained the fundamentals and benefits of cryptocurrency lending platforms, you will agree that lending bitcoin and other cryptocurrencies require that you take the time to explore a lot of information. This section looks to introduce you to integral factors that would help you pick viable solutions.
The Type of Lending Framework
Recall that we segmented crypto lending facilities into three major groups. Each variation has its strengths and weaknesses, and it is up to you to consider their unique frameworks and how they impact your earnings or debts. For one, people who desire a degree of freedom and smart contract feature would naturally find semi-decentralized and fully decentralized crypto lending facilities appealing. The same applies to individuals who would rather stick to conventional lending facilities entrenched in fully-centralized business frameworks.
The Jurisdiction That the Crypto Lending Platform Caters To
Owing to the nascent status of this business, it might prove difficult to find crypto lending platforms that cater to a global market. In most cases, these solutions are geo-selective because of the regulatory irregularities plaguing the crypto space. As such, credible lending facilities only offer services to individuals in countries where they have successfully scaled the regulatory requirements for providing bank-related services. In light of this, we suggest that you ensure that the crypto lending platform you are considering is a legal in your jurisdiction. By doing so, you can ascertain that you are not susceptible to the risk of losing funds as a result of actions taken by regulators against an illegal crypto lending facility.
The Cryptocurrency That the Platform Supports
More often than not, crypto lending services prefer paying loans or interests in stable coins. The popular stable coins utilized in this niche are USDT, PAX, GUSD, DAI, and TUSD. While this is a given, some allow users to deposit cryptocurrencies like BTC and ETH, and the interest you would access depends on the type of crypto you deposit. Therefore, you ought to pick lending solutions that support the cryptocurrency you own and research interest rates offered for such crypto. for instance, for people who want to lend bitcoin, we suggest that you look out for the best bitcoin lending sites.
The Fees Policy of The Platform
There are a lot of things to consider in this section, as it determines your profitability. Also, the policy of the platform you choose defines how favorable the loan facility is. The first thing to consider here is the interest rates of the platform. Most crypto lending sites have unique rates for each supported cryptocurrency. So, you ought to carry out due diligence to pinpoint what you stand to earn at the end of the day. Secondly, determine how the platform calculates expected earnings. Does it compound interests? If so, how does its compounding system works?
Next, take the time to research the consequences of fluctuations of crypto’s market valuation on your expected earnings. Likewise, it is advisable to check for clauses that require borrowers to deposit more collaterals when the prices of cryptocurrencies dip. It is vital to ascertain lockup periods and minimum/maximum deposits.
The Platform’s User Interface and Design
User experience is an important factor to consider when looking to adopt the best crypto lending site. We advise that you go for platforms with simple and aesthetic designs that aid loading speed. Also, we expect these solutions to make their features and services easily accessible, as it could determine the speed at which users receive loans or lend crypto. Furthermore, it is crucial to only opt for services with real-time earnings tracker and calculator systems. More so, you should ensure that the platform is compatible with mobile devices by preferably availing a mobile app or incorporating a mobile-friendly design.
The Customer Support of The Crypto Lending Solution
For now, a majority of crypto lending solutions have only the English version of their websites, which punctuates the current siloed status of the market. Regardless of this assertion, you should ensure that the customer support system of the platform under consideration caters to your unique needs. This requirement encompasses language compatibility, a 24/7 feedback mechanism, and a broad array of customer support channels. With all this, you can ascertain that you can access representatives whenever you need assistance.
The Security of The Crypto Lending Solution
Considering that this service entails that you deposit your crypto fund as collateral or to lend it out to borrowers, you, therefore, need to do extensive research regarding the safety of the platform. Here, you should explore the measures adopted to guarantee the security of assets. Some of the security measures to look out for are two-factor authentication systems, encryption protocols, and wallet security features. Ensure that the platform has done enough to shield their wallets from attacks by incorporating multi-sig functions or distributing assets across multiple wallets. Also, it is a plus if your preferred crypto lending solution stores users’ assets with insured crypto custody platforms.
How Did Cryptolinks Compile Its List of The Best Crypto Lending Platforms?
Crypto lending solutions are becoming common tropes in the crypto space. As such, we have painstakingly explored platforms that offer crypto loan services and picked the ones that have shown that they belong to the top echelon of the budding market. To do this, we implemented an organic research methodology that bordered on the recommendations listed in this guide.
In other words, we researched the legal standings of crypto lending platforms in different regions to determine the jurisdiction they cater to. Likewise, we researched the cryptocurrencies that each supports and how their crypto compatibility impacts their statuses as solutions targeting a broader demographic of participants. Next, we took the time to assess interest rates, compounding rates, lockup periods, maximum/minimum deposits, and service charges. Knowing fully well that this research section connotes the profitability of these platforms, we, therefore, compared rates accordingly and gauged the flexibility of the pricing system of each crypto lending solution.
After this rigorous process, we explored the user interface of each platform and ensured that only those with premium user experience and mobile-friendly designs featured on our site. Likewise, we analyzed the customer support system of the websites reviewed and based their scores on the quality of the feedback mechanisms found on each as well as their accessibility. Lastly, we examined the security of each platform under review. Here, we examined the quality of the security measures available on each solution.
In the end, we found 10 crypto lending platforms that had performed satisfactorily well after undergoing our review methodology. Note that each platform has separate review articles highlighting its unique workings. You can peruse these articles to get a better understanding of why we have handpicked these websites.