One of the benefits of investing in cryptocurrency is the ability to use your holdings as collateral for a crypto loan, even if your holdings are relatively small. In traditional markets, a similar practice is called securities-based lending, but it is typically off-limits to all but high-net worth clients of private banks and large financial institutions.
Crypto loans are much more accessible, and they offer “hodl” investors a way to achieve liquidity from their investment without selling it. In this article, we’ll introduce some of the best crypto lending platforms. If you’d like to learn more about the categories of loans and how they might affect your taxes, read our blog “Crypto Loans and Your Taxes.”
Aave is a large DeFi liquidity protocol with a wide range of crypto loan options. In addition to regular crypto loans, Aave offers uncollaterized flash loans (which it pioneered), short-term fixed interest rate loans, an AMM market, and markets on Polygon and Avalanche. It boasts high LTV rates and low borrowing rates.
Lenders to the protocol deposit their funds and receive aTokens in exchange, which accrue interest. Interest rates for stablecoins hover around 5%.
Abracadabra.money is a rapidly growing DeFi project that accepts collateral in the form of interest-bearing tokens. In return, borrowers receive MIM (magic internet money), a USD-pegged and asset-backed stablecoin that is traded on many exchanges. This protocol allows investors to “use” their staked funds while still earning yield.
The project is adding cross-chain support, including Arbitum, Avalanche, BSC, and Fantom. Abracadabra offers LTV rates up to 90%.
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Users can also stake LP tokens to farm SPELL (the protocol’s native token).
Alchemix is a DeFi loan platform that uses a new but intriguing method to provide loans that “pay themselves back over time.” In very simple terms, it works like this: users deposit DAI into a smart contract and in exchange receive a token that represents the deposit’s future yield farming potential. This token is called alUSD and can be transmuted 1-1 for DAI on the Alchemix platform or traded on a DeFi exchange like Sushiswap.
The smart contract then transfers the deposited assets into a Yearn vault that mints DAI. As the yield harvests, Alchemix users’ alUSD debt decreases, meaning that ultimately the deposit’s yield harvest automatically “pays back” the loan.
Alchemix users can mint an alUSD coin worth up to half of the asset they deposit. If we translated this ratio into more typical crypto loan terms, Alchemix offers an LTV of 50%. Although it currently only accepts DAI deposits, it expects to accept more stablecoins soon.
Although Gemini doesn’t offer crypto loans, it is an attractive way to earn interest on your assets. Daily compounded interest allows you to make up to 8.05% APY and users have much more flexibility when it comes to moving their funds. Unlike on many yield-generating platforms, on Gemini Earn you can transfer funds out of Earn and into your trading account at any time.
Gemini, a CeFi firm founded by the Winklevoss twins, also has an exceptional commitment to security.
Mango V3 is a project on the Solana chain for low-latency lending, borrowing, swapping, and trading. It stands out for three reasons: first, it allows leveraged trading, meaning you can use borrowed funds for up to 10x leveraged trades on the Serum DEX ecosystem or 20X on Mango’s perpetual futures books. Second, it allows cross-trading. Third, through MangoDAO, Mango V3 has a $70 million deposit insurance fund.
In the past year, Mango has had incredible interest and borrowing rates: up to 74% for interest and as low as .78% for borrowing. However, Mango’s leveraged trading should be approached very cautiously; margin trading is risky, particularly in the volatile crypto market. It is quite possible to end up owing much more than you ever deposited.
Nexo is one of the most popular CeFi lending platforms. It may be a good choice for more conservative investors, because it offers $375 million of insurance on all custodial assets. The platform has $13 B in assets and more than 3 million users. Nexo’s LTV rates are typically slightly higher than average CeFi loan providers. Borrow rates cap out at 13.9%, while on the lending side, you can make up to 17% APR.
Among CeFi lenders, Unchained Capital stands out because it doesn’t rehypothecate (loan out again) funds. Additionally, it has a multisig collaborative custody model, which gives borrowers more transparency into their assets and increases security. In this system, accessing collateralized assets requires three private keys. One is controlled by the borrower, one by Unchained Capital, and one by a third-party key agent.
Unchained Capital only offers bitcoin loans and only lends in the United States. Additionally, to use the platform, borrowers must use a hardware wallet. Its higher security comes with a somewhat higher barrier to borrowing: it has lower LTV rates and higher interest rates than most CeFi providers.
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