Cryptocurrency is sizing up traditional finance on its legacy turf of lending and borrowing with competitive interest rates (currently as low as 0.44% for ethereum and 4.50% per year for bitcoin) as well as less cumbersome verification procedures. Crypto holders present their virtual assets as collateral to get loans paid out in fiat or stablecoin. The option allows one to keep an immediate financial need separate from long-term crypto investment as well as evade a taxable sale of their crypto funds.
Investors are also able to lend their digital assets and pick up significantly higher passive income – of as much as 12% on their deposits – than generally offered by conventional institutions. Whereas bank customers may currently be recording negative interest for their money due to the Covid-19-induced global economic recession, crypto lenders put their money to work for them.
Risks in the growing market include the theoretic vulnerability of smart contracts to hackers and a lower level of regulation for the exchanges, including decentralized ones, and wallets offering the service.
News.Bitcoin.com briefly profiled platforms that offer the best virtual assets borrowing rates. Services are ranked for BTC and ETH, according to data provided by Coinmarketcap. The ethereum space is dominated by decentralized finance (Defi) protocols while bitcoin borrowing is dominated by centralized wallets and exchanges. All featured services also allow the lending function.
Dydx offers the best borrowing rate for ether at 0.44% per annum. The decentralized exchange’s interest rates fluctuate based on the supply and demand of loans and deposits of the particular crypto-asset. Dydx allows users to leverage positions up to 4x. Users can borrow directly to a wallet. The minimum starting account collateralization is 125% and must be maintained above 115% to avoid liquidation of the account.
Nuo offers a rate of 2.33%. Like Dydx, the decentralized platform allows users to margin trade cryptocurrency in addition to lending and borrowing. Rates similarly fluctuate depending on supply and demand. Users can leverage trade up to 3x and borrow up to 0.7x of the collateral amount.
Compound Finance is also a decentralized exchange. It currently offers a borrowing rate of 3.06%. Users can also deposit one crypto-asset and request for a loan of other digital tokens. Rates fluctuate based on supply and demand. The collateral factor for ETH is 75. For example, a user with assets worth $100 can borrow up to $75.
Sitting atop the BTC list for best borrowing rates with 4.50%, Celsius is a wallet that allows customers to deposit and loan virtual currencies. The centralized service fixes all interest rates for its users. Celsius incentivizes use of its CEL token with better rates for deposits. Celsius started in 2018 with a minimum loan of $10,000 which has gone down a few times to the current minimum of $1,000.
Coinloan is tied with Celsius on the top spot with a 4.50% loan. Depositors can monitor interest for their crypto, stablecoin, or fiat investments in real time and get back funds any time on demand. To get 100,000 euros ($118,000) with a loan-to-value ratio of 60, a user needs to deposit 26 BTC.
Bitrue offers an interest rate of 5.85%. The centralized exchange sets the asset-type, capacity, and yield for each deposit product. It also offers loans of crypto-assets, backed by the user’s deposits.
Nexo has a remarkable minimum loan of $10, at interest rates of 5.9% per year. Like most wallets and exchanges in the business, no credit checks are involved. The credit line limit is calculated according to the value of assets. Nexo fixes interest rates for its users and offers a variety of currencies including stablecoins, U.S. dollar, British pound, and euro.
What do you think of the prevailing interest rates for borrowing cryptocurrency? Let us know in the comments section below.
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