All You Need To Know About Crypto Loans

Getting a loan from a bank can be a cumbersome process. Thankfully, as the technology is evolving, availing of loans has become easier with crypto loans. Yes, you heard it right! Along with cryptocurrency, it's time to experience crypto loans too. Crypto loans are entirely automated and online, unlike lengthy and confusing bank procedures! So let's get our basics right about the crypto loans.

What is a crypto loan?

Also known as crypto lending, borrowers can avail of crypto loans by using their cryptocurrencies as collateral. The interest payments associated with these loans are called 'crypto dividends'. A crypto loan is lent in fiat currency, and the borrower can exchange it with their crypto assets like Ethereum, Bitcoin, etc. 

Types of crypto loans

● CeFi crypto loans

Centralized crypto loans (CeFi) function under a custodial authority which takes care of the user's authentication. Various authentication methods include KYC implementation. These loans are pretty flexible with lucrative interest rates with set agreements.

● DeFi crypto loans

Decentralized crypto loans (DeFi) function as peer-to-peer loans where borrowers and lenders interact through a decentralized platform. Such loans are not controlled by a custodial authority and are managed by smart contracts. Hence, people seeking to avail of these loans do not require KYC, and the protocols are transparent to everyone. In addition, interest rates for DeFi vary and are relatively lower than that of CeFi loans.

Benefits of decentralized crypto loans

● Liquidity – You get complete authority on your funds with margin trading options. This means that long-term investors can also lend assets and earn attractive interest rates. 

● Transparency – Since a central authority doesn't control DeFi loans, there is no interference from third parties. As smart contracts regulate these loans, the data is accessible and auditable on the public blockchain for the on-chain users. Further, anyone can view the essential market data on the crypto loan.

● Smart validation – Now, lenders do not need to waste time finding out how creditworthy the borrower is. All thanks to smart contracts that prove to secure agreements between both parties.

● Instant and agile – Along with fast peer-to-peer loan transactions, DeFi loans offer varying interest rates. The interest rates can automatically change according to the market's latest supply-borrow ratio.

Conclusion

Crypto loans are the new future of lending and borrowing. By implementing correct blockchain technologies, we are bound to transform the finance landscape in no time. If you plan to get your own blockchain-based crypto platforms, contact Seven Bits. With 11 years of excellence, this firm has continuously expanded its boundaries with its robust technology and data solutions. For more information on their services, visit their website today!

FAQs

What type of loan is a crypto loan?

A crypto loan is a secured loan where cryptocurrency is used as collateral.

How are interest rates for crypto loans decided?

In decentralized crypto loans, one can alter the interest rates through smart contracts, an official agreement between borrower and lender.

How to get smart contracts developed for crypto loans?

If you plan to develop smart contracts for crypto loans, you must hire a professional cryptocurrency developer specializing in smart contract development.