what is crypto lending? getting loans with cryptocurrency can often be less complicated
than getting traditional bank loans. but what exactly are crypto loans? crypto enthusiasts are
often encouraged to huddle their assets keeping them safe in a wallet until the price of their
chosen currency appreciates. but just like you'd feel uneasy about leaving your cash
sitting around in a bank with a low interest rate a common question is this how can you get your
digital currency to grow, this is where crypto lending comes in. not only can it enable servers
to receive interest on their stash of bitcoin but it enables borrowers to unlock the value of
their digital assets by using it as collateral for a loan. when investing one of the biggest
challenges can be cash flow. and there's nothing worse than having to raid the capital you've got
tied up in assets for short-term costs and lack liquidity bitcoin loan. let's imagine
that steve has two bitcoins. he doesn't want to sell any of this because he's confident that
prices are going to appreciate substantially. steve's also worried that if he does end up
offloading his crypto there's a risk that he'll end up with less bitcoin when he buys it 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 in stable coins owing to the
volatility of digital assets he'll normally have to over collateralize meaning he'll have to lock
up more bitcoin than the overall value of the funds he's receiving. once he's repaid the loan
plus interest his crypto will be returned in full and he'll make a handsome profit if bitcoin ended
up appreciating as he predicted. his crypto would only be at risk if he failed to keep up with the
loans terms or if the value of the bitcoin held as collateral fell below the value of the loan
he received. benefits of taking on a crypto loan: one of the major bonuses many see in crypto loans
is that unlike traditional banking you won't be subject to your credit score being assessed.
this means that lending is much more accessible to people who don't have a financial history
under banked consumers, 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.
repayments can also be much more flexible. and whereas it can take several days for loans
to clear in the old fashioned financial world bitcoin loans can be practically instant you'll
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're not
sure where to begin, you have two main options: centralized and decentralized lending platforms.
centralized ecosystems have to follow certain rules and procedures to be compliant. you'll
have to create an account by signing up for your chosen platform and go through the kyc know your
customer procedures that 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 the digital assets in their custody in cold storage,
meaning they're away from an internet connection. centralized crypto lending platforms still record
all deposits and withdrawals using blockchain technology visible to anyone and offer a great
way to earn interest on bitcoin alongside many other cryptocurrencies and stable coins like usdc
and die. to put it into perspective your best usd savings account bank rates barely scrape past the
one percent apy mark, yet many platforms offer up to eight percent on crypto interest rates. it's
worth doing your homework to get the best deal and avoid paying above average 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 phone call away could make
these platforms more appealing to traditional investors. what is decentralized finance defy
lending? defy lending platforms are completely decentralized and transactions are handled by code
rather than people. smart contracts use algorithms and protocols to automate loan payouts anyone can
access the protocols on a decentralized finance platform which makes them completely transparent
as 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 lending often pale in comparison to what centralized rivals can provide.
getting a bitcoin or eth loan or any other type of crypto loans on a d5 platform is very quick as
you won't need to pass any kind of due diligence. thanks to smart contracts all a user will need to
do is apply for the loan and then send the crypto they want to use as the collateral to a specified
wallet associated with the lending platform. the users of decentralized lending platforms
can apply for a loan of any size without having to confirm their identity to a third party. loans can
be supported in stable coins such as usdc, fiat currencies or cryptocurrencies such as ethereum or
bitcoin. so should you get a crypto loan? not on many centralized and decentralized landing platforms
you'll have the option to open up a savings account using your crypto as well as trade tokens
or take out loans. with both types of landing platforms still in their early stages it's clear
that this is an exciting space to watch. there's a lot of room for growth and the potential to access
borrowing without the usual formalities could be a game changer for both the people and the financial
services industry. and this has been another cmc explainer video. if you want more of these be sure
to subscribe to our youtube channel and check out coinmarketcap.com for the latest in crypto