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The crypto industry has developed rapidly over the past decade. With a global market capitalization of over $2 trillion, the crypto market is not merely about buying and selling!
Did you know there are multiple financial services in the DeFi realm that make the crypto industry lucrative?
Crypto lending & borrowing services are one among them!
Statistically speaking, the crypto lending market has been growing substantially. As of January 2024, the total active loans across all blockchain platforms amount to nearly $600 million.
However, you may wonder what is crypto lending & borrowing. What are the pros & cons surrounding it?
This blog will answer your all questions and also introduce you to a seamless and user-friendly crypto lending & borrowing platform.
What is crypto lending& borrowing?
Crypto lending refers to the process of lending out cryptocurrencies to borrowers in return for regular payment of interest. The payments of interest are made with cryptocurrencies that are compounded on a daily, weekly, or monthly basis.
What’s the difference between crypto lending and traditional lending? Unlike the traditional lending process, the loan terms for cryptocurrency vary from seven days to 180 days. Besides, the process can cost hourly interest charges, like Binance.
Crypto borrowing allows traders to borrow crypto from numerous assets listed on a crypto exchange. Like traditional borrowing, you need to provide enough collateral to take out the loan.
Crypto lending & borrowing has increased by more than 55% since early 2023. According to the data of Yahoo Finance, the global digital lending platform market is projected a CAGR of 21.9% through 2028.
Now that you are aware of crypto lending & borrowing, let’s explore its pros & cons!
5 Pros & Cons of Crypto Lending & Borrowing You Should Know!
Pros
Low Rate of Interest
If you are eyeing a traditional loan, get prepared for an interest rate of 10% or higher. However, interest rates on crypto platforms are lower – both on CeX and DeX.
The interest rate of cryptocurrencies depends on the tokens. However, the rate can go down as low as 0.95%. Interesting isn’t it?
Select assets from Wide Varieties
When you borrow from your local bank, you’re stuck with the same old national currency options. Boring, right?
In the realm of crypto lending & borrowing – you can choose from a wide range of tokens. In fact, you can borrow coins from lesser-known assets, known as stablecoins.
If you think it is beneficial only for the crypto borrower, hold on readers! Even crypto lenders benefit from this. If you are a lender looking to benefit by lending your token, you can find a DeFi platform that wants your funds.
Access to more credits
Unlike traditional lending & borrowing, you do not need to have a traditional bank account for lending or borrowing crypto.
How is it beneficial?
Did you almost one-third of the world is unbanked? In contrast to the traditional banking system’s demand for a standard bank account, crypto lending and borrowing are far more inclusive.
Cons
Risk of Loss
One of the key disadvantages of crypto lending & borrowing is the risk that it entails. According to Jae Yang, founder of crypto exchange Tacen, “Because crypto deposits are not insured by any federal insurance, loan holders risk losing their money if the platform provider goes insolvent.”
Therefore, extreme market conditions can result in a cascade of downstream issues in the process.
High liquidation risk
Crypto borrowers need to stay alert to the risk of high liquidation. Crypto borrowers need to deposit twice the value of their requested loan or have a loan-to-value (LTV) ratio of 50%.
Dikemba Balogu, a chartered financial analyst and financial advisor for Genius Yield and Genius X, says, “Liquidation triggers are built into the contract, such as an LTV greater than 75%, [which] would lead to automatic liquidation of the borrower’s collateral to make sure the lender receives the principal back.”
How 3.0 Verse can Help You?
3.0 Verse makes crypto lending & borrowing a notch easier. Wonder, how?
Our platform helps you to navigate across various networks like Polygon, Ethereum, Avalanche, and more!
That’s not all! You can also connect your wallet with 3.0 Verse platforms to access top exchanges and protocols like Compound, AAVE, Curve, etc.
Lending & borrowing your crypto is not time-limited!
Through 3.0 Verse, you can lend, borrow and manage your assets 24/7.
Our platform incorporates a secure DeFi wallet enabling borrowers to deposit their crypto assets for borrowing.
Moreover, you can now have access to a wide variety of coins as the wallet is compatible with multiple tokens and stablecoins – guaranteeing flexibility.
Wrapping it Up!
Crypto lending and borrowing can be enticing. However, you should continue with caution. You should be familiar with the trading platform, the tokens you wish to trade with, and the complete process.
The method has both advantages and disadvantages, so you must be well-versed with practical knowledge.
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