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The blockchain system has been revolutionizing the traditional financial systems and replacing the existing institutions. The concept of DeFi or Decentralized finance has popularized the borrowing and lending of cryptocurrency assets.

Crypto loans are gaining popularity, so companies such as Bitcoin Dealers have made use of the cryptocurrency assets that people have stored. Bitcoin Dealer is an Australian company that buys, sells and uses cryptocurrencies as collaterals. They are a well-established company in major Australian cities such as Melbourne, Sydney and Adelaide.

Crypto-backed loans are more preferred than traditional loans as they are fast, they don’t include any credit checks or any there verification and they are safe. Thus, the crypto lending business is a rapidly booming business.

Participants in Crypto lending

Lenders:

  • They are looking to lend their cryptocurrency or money.
  • For example Hedge fund managers, institutional lenders etc.
  • They have the security and protection to carry out collateralization.

Borrowers:

  • They are looking to borrow digital assets or money.
  • They need to borrow assets to meet their own other settlement obligations.
  • Arbitraging techniques.

Types of Crypto lending

There are different types of crypto lending such as:

  • Margin Lending: This service allows lenders to borrowers in multiple currencies. The details such as interest rate, duration are all decided by the lender. This allows users to earn a side income by lending USD/cryptocurrency.
  • Crypto-to-Crypto Lending: This allows lenders with spare cryptocurrency to lend it and earn interest in return. Here, the cryptocurrency such as Bitcoin, Ether is itself loaned instead of money.
  • Crypto to Fiat Lending: This is useful for cryptocurrency holders who are in need of cash. The cryptocurrency works as collateral for the borrower to borrow cash from lenders. The mutual interests will regularly be paid to the lender.
  • Credit Score Lending: This lending occurs between a specific group of the trusted network. It is a service that requires exposing private data and is focused on small scale consumer loans.

Advantages of Crypto lending

  • Negligible transaction fees: Crypto-backed loans do not have processing or banking charges. Traditional loaning systems facilitated by banks take transaction and processing charges.
  • No need for paperwork: Only in case of Crypto-to-Cash loan, borrowers will need a bank account. Otherwise, there is no need for any KYC documents as crypto lending also targets persons who are unbanked and undocumented.
  • No boundaries, loans diversified: Crypto lending crosses all political and geographical boundaries. The whole world functions on one platform and so borrowers can get many lenders. Loan offers are diversified through the cross country platform.
  • Platform safety: Platforms can be provided by firms selling their software that connects buyers and sellers for a small fee. Or, online cryptocurrency, where borrowers and lenders interact directly.

Conclusion

In conclusion, crypto lending is going to be a tough competition for traditional banking institutions once these currencies become legal all around the world. There are still political restrictions regarding these techniques. However, if more secure ways of crypto lending are introduced with the full exercise of DeFi, then it will reach its true huge potential.