did you know that getting a loan with cryptocurrency is often far less more complicated
than getting a loan with a traditional bank? On today's CoinMarketCap tutorial we will discover
the benefits of taking a crypto loan, how they got started and of course getting into the practical
and talking about how to get them on centralized exchanges and on DeFi so make sure to stick around
until the end. Welcome to CoinMarketCap's Tuesday Tutorials where we make it easy for you
to get the most out of all the crypto tools out there. I'm Trev and here at CoinMarketCap we love
making videos about all things crypto. So if you want more videos like this one then make sure to
hit the like button down below. Crypto enthusiasts are often encouraged to HODL their assets
keeping them safe in a wallet until the price of their currency appreciates, but just like how you
feel uneasy leaving your cash in a bank account with low interest rates, a common question arises
which is how can you get your digital currency to grow and this is where crypto lending comes
in so let's imagine that steve has two bitcoins and he doesn't want to sell any of it because he
thinks that the price of it is going to go up substantially but steve's also worried that if
he doesn't end up offloading his crypto there'll be a risk that he ends up with less bitcoin if he
buys back at a later date crypto lending platforms can come to the rescue here typically steve will
be given the opportunity to use his bitcoin as collateral and receive a loan and stable
coins he will normally have to over collaterize meaning he'll have to lock up more bitcoin than
the overall funds that he's receiving and this is because of the volatility of digital assets
but once that loan is repaid to him plus interest his crypto will be returned in full
and he'll make a handsome profit if his bitcoin ended up appreciating just like he thought it
would his crypto would only be at risk if he failed to keep up with the loan's terms or
if the value of the bitcoin held his collateral fell below the value of the loan that he received
so crypto lending started to take off around the time economies came to a screeching halt in 2020
due to the pandemic this saw interest rates get slashed and lending for big ticket items took
a nosedive so as many people were looking for other ways for their assets to work for them
crypto loans became a quick and easy way for people to get access to fiat currencies almost
instantaneously and all of a sudden the days of bitcoin and litecoin gathering dust in an exchange
or cold wallet were numbered unlike personal loans or credit cards collateralized loans are
much more secure for the lender which enables the borrower to take advantage of cheap interest rates
cryptocurrencies are very volatile which is why these loans are almost always over collateralized
this provides insurance for the lender should the price of crypto just completely plummet however
this can negatively impact the borrower especially if the platform they use requires them to always
maintain their loan to value ratio one of the major bonuses that people see in a crypto loan
is that unlike traditional banking you won't be subject to your credit score being accessed
this means that lending is often more accessible for people who don't have a financial history
underbanked customers who don't have a bank account and self-employed workers who struggle to
access credit because their fluctuating earnings don't meet a bank's strict lending criteria
and repayments can also be more flexible and where it takes several days for a loan to clear
in the old-fashioned financial world bitcoin loans can be practically instant you will also be able
to make your assets liquid without triggering a taxable event and you can adjust the loan to suit
your needs users can also switch between crypto assets so you can deposit ether and borrow tether
all on the same platform if you like the sound of a bitcoin loan but you don't know where to start
you have two main options centralized and decentralized lending platforms centralized
ecosystems such as blockfi nexo and binance all have to follow strict rules to stay compliant
you'll have to create an account on your chosen platform and you'll then have to go through kyc
or know your customer procedures and these are in place to prevent fraud and money laundering
these platforms typically have protocols in place to ensure that your collateral is safe
some protect crypto assets via insurance or keep the majority of their digital assets in a custody
like a cold storage meaning they're away from an internet connection centralized crypto lending
platforms will still record all deposits and withdrawals using blockchain technology visible
to everyone and offer a great way to earn interest on bitcoin alongside many other cryptocurrencies
and stable coins like usdc and dye to put it in perspective the best usd savings account usually
only hold for a one percent apy yet many platforms offer eight percent on crypto interest rates but
it's worth doing your homework to get the best deal and also to avoid any other unwanted fees
there's more paperwork involved in getting a loan through a c5 platform but the fact that
there's a regulated environment and a customer service representative who's just a click or a
phone call away could make these platforms more appealing to traditional investors
the second option for crypto lending would be to go for a decentralized platform or d5 for short
unsecured crypto loans also known as crypto loans without collateral are innovative new financial
services that provide short-term liquidity and can be paid back in fiat or in cryptocurrencies
so the idea is to borrow funds directly from a lender using a cryptocurrency is collateral
instead of a traditional asset such as property and gold if you are interested in an unsecured
crypto loan or crypto loan with no collateral there are a number of platforms that make this
possible for example flash loans are a popular example for crypto loans with no collateral but
they do require a high level of crypto knowledge to navigate and before moving forward on any
crypto loans without collateral be sure to do your own research to see if the platform you're
using is legitimate d5 platforms are completely decentralized and transactions are handled by
code rather than people on services such as ave compound or dydx smart contracts use algorithms
and protocols to automate loan payouts anyone can access these protocols on a decentralized finance
platform which makes them completely transparent because nothing can be hidden on the blockchain
unlike c5 platforms there's no middleman or financial regulator which means you don't have
to go through a verification process like kyc however defy interest rates for crypto often
pale in comparison to what centralized rivals can provide getting a bitcoin or ethereum loan on any
other crypto loans or d5 platform is very quick as you won't need to pass any kind of due diligence
thanks to smart contracts all the user will need to do is apply for the loan and then send
the crypto they want to use as collateral to a specified wallet associated with the lending
platform the users of decentralized lending platforms can apply for a loan of any size they
want without having to confirm their identity with a third party loans can be supported in stable
coins such as usdc or in fiat currencies or in cryptocurrencies such as ethereum or bitcoin and
that's it for today's coinmarketcap tutorial with both types of lending platforms still in the early
stages it's clear that this is still an exciting space to watch there's a lot of room for growth
but the potential to access borrowing without the usual formalities could be a game changer
for both the people and the financial services industry let us know below if you guys want us to
do a deep dive into all of the lending platforms out there and as always if you or your friends
have any questions about crypto just ask alex in the description below thank you guys so much for
watching this week's episode of coin market caps tuesday tutorials where we make it easy for you
to get the most out of all the crypto tools out there i've been your host trev and now i passed
the challenge on to you it's in your hands to get more people to understand crypto and all of its
potential so make sure to share this video with a friend or family member anyways guys see you soon