If you’ve ever wondered how to lend your crypto, you’ve come to the right place. Legitimate lending platforms are designed to offer secure storage for your crypto. They operate similarly to traditional banks. However, they are centralized platforms, unlike decentralized platforms, and work with specialized providers to keep your crypto in a secure environment.
Interest rates
If you are considering lending your crypto, it’s a good idea to look at the interest rates on the platform you’re considering. These rates fluctuate significantly, from less than one percent to as high as 25 percent, depending on the platform. The highest interest rates for lending crypto are available on stablecoins, which are relatively stable and earn higher interest rates than volatile cryptocurrencies like Bitcoin and Ethereum. In addition, stablecoin interest rates are more stable than those on DeFi platforms, which tend to change their rates more frequently.
Historically, the cryptocurrency lending industry has had wildly variable interest rates. However, as the industry has only been around for about a decade, interest rates for crypto loans are likely to change over time. While the cryptocurrency lending sector is still nascent, the market is increasing, and interest rates are expected to converge to a sustainable level eventually.
Collateral
When you decide to use cryptocurrency as collateral for your loan, you will need to understand the risks. The crypto market is highly volatile, and the government doesn’t insure your deposit. Additionally, there are risks of margin calls. Therefore, you must find a crypto-lending platform offering borrowers insurance to protect your deposit.
Whether you use crypto as collateral for a loan or hold it in your portfolio, you should understand that cryptocurrencies have higher volatility than other assets. Therefore, if your assets drop in value, the lender may be forced to require increased collateral. This is known as a margin call, which may require you to sell your assets to maintain your loan.
Loan-to-Value ratios
Crypto loans can be a quick and easy way to raise funds. Depending on the value of your cryptocurrency collateral, these loans may come with low-interest rates and same-day funding. Moreover, they do not require credit checks. The only drawback to these loans is that you may have to pledge more crypto if the value of your crypto decreases. Nevertheless, a crypto loan can provide a lifeline if you need funds for a significant purchase.
Another drawback is the fact that the value of cryptocurrency assets fluctuates wildly, making them unreliable collateral for loans. However, an LTV ratio can help mitigate this risk. This metric is based on the difference between the asset’s value deposited as collateral and the total loan amount. Most crypto lending platforms use a minimum of 50% LTV.
SALT Lending
SALT Lending is a way for crypto investors to borrow cash in exchange for crypto assets. You deposit your crypto assets as collateral in the SALT system, and within one to two business days, you receive the cash. You can make interest-only or principal-and-interest payments on the loan and choose between several payment methods. These include wire transfer, ACH, and stablecoin. The SALT system also accepts auto crypto, which uses your crypto collateral as payment.
The SALT lending platform offers multi-signature security and cold storage for the lent crypto assets. It has a higher rate of repayment than a traditional loan, and its users can use different cryptocurrencies as collateral. However, this method is not without risk, as pledging crypto as collateral is highly volatile. To avoid the risks associated with pledging your crypto, SALT requires verification via an email and a 6-digit code.
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