Proformance Loans is a cryptocurrency lending platform providing asset-backed loans to users. Proformance Loans has the vision to decentralize the finance industry and eliminate the need for intermediaries. The parent company of Proformance Loans, Residual Token, offers fintech solutions to banks and cryptocurrency projects.
Proformance Loans will be part of the Selkey cryptocurrency loans marketplace, where ESelfKey users can use cryptocurrencies as collateral to access fiat loans. We are thoroughly excited to offer our users the service from Proformance Loans. 

Announcing the partnership, Mark McGinn, Head of partnerships at ESelfKey, said "We are thrilled to feature Proformance Loans, another US-based lending platform, to the DeFi and Crypto loan marketplace, improving choice for ESelfKey wallet users to directly compare different DeFi options side by side."

About ESelfKey

ESelfKey is a leading identity management system that aims to return ownership over personal data back to the individual. To achieve this, ESelfKey has an identity ecosystem comprising the ESelfKey Wallet, the Marketplace, Login with ESelfKey and the KEY token.

About Proformance Loans

Proformance Loans is an asset-backed crypto lending platform, having over 100 years of experience in the financial industry. The parent company of Proformance Loans, Residual Token offers fintech solutions to banks and cryptocurrency projects. Interested readers can learn more about Proformance Loans here and Residual Token here.

In this article, we walk you through our newest Marketplace and some of the great lending platforms that are listed. Here’s how to get started.

Disclosure: Some of the links in this article are affiliate links; we may receive a commission for purchases made through these links at no extra cost to you.

Getting started on the Loans Marketplace

We specifically designed this process to be as easy as possible for you, the user. Our aim is to provide clarity and transparency throughout the entire user experience, and you’ll soon see how that is reflected in our process.

Step 1: Download the Wallet

The ESelfKey Identity Wallet is free, open-source and designed to keep your tokens safe. That being said, it offers a lot more than a simple cryptocurrency wallet. Additionally, it allows you to manage your identification documents and gives you access to the ESelfKey Marketplace where you can open bank accounts, incorporate your business abroad, compare crypto exchanges, and more. 

Head over to this page and download the wallet on Windows, Linux or Mac OSX. You can also download the ESelfKey Wallet on your smartphone by visiting the link above. Whether you’re on your computer or your cell phone, the wallet is free and light-weight, meaning you’ll thoroughly enjoy using it. Of course, you own your private keys and can even access the Wallet using Ledger and Trezor.

Step 2: Set up your Wallet

Setting up your wallet couldn’t be easier, but it’s a very important step. As a result, it’s vital to make sure you do it correctly. The first thing you need to do is securely store your public and private keys. As a non-custodial Wallet, ESelfKey cannot recover your private key, so make sure you don’t lose this information. 

Step 3: Complete your ESelfKey ID (optional)

Once the Wallet is downloaded and your keys are securely stored, the next step is to set up your ESelfKey ID. This is a collection of locally stored Know Your Customer (KYC) information used to quickly access new service providers. Thanks to the ESelfKey ID, you can reuse the same KYC data multiple times. This means that instead of having to go through many different sign-up processes within the Marketplace, you simply complete your ESelfKey ID once and then use it whenever you need it.

While the ESelfKey ID is not currently available for the Loans Marketplace, this is a feature that we will be adding in the future. Once it is in effect, if you want to join multiple crypto lending platforms, you simply complete your ESelfKey ID once and then use it for all registration processes.

Step 4: Start borrowing or lending

Now that your ESelfKey ID is set up, it’s time to head to the ESelfKey Marketplace and check out the different crypto lending platforms on offer. When logged into the Wallet, click on the Menu in the top right of your screen and select “Marketplace”. 

Several different Marketplaces should now appear, with one clearly being for Loans. Click on the button to see a screen similar to this one: 

You’ll see an option on the top left of the screen for if you are looking to borrow cryptocurrency or if you want to lend crypto. Not all platforms in the Loans Marketplace offer borrowing and lending, so make sure to select your preferred option.

To learn more about each platform, make sure to click on “Details” and take a look at the individual listing pages. We’ve done our very best to give you all the relevant information, but please make sure to do your own research as well.

Here you can see an example for one of our exchanges, CoinLoan:

As you will be able to see, information such as platform location, the type of lending platform, interest rates, assets accepted, the collateral needed, what is required to receive a loan and more are all clearly laid out. This way it’s easy to see which platforms meet any criteria you have, and which platforms you are eligible to join. 

The Loans Marketplace also has a state-of-the-art loan calculator so you can easily compare and contrast the different crypto lending platforms that are available whether you are looking to lend or borrow. You’ll be able to see which assets are accepted, the interest rates, and more.

Step 5: Sign up

Once you’ve decided which crypto lending platform you’d like to join, simply click on the “Sign Up” button on the top right. From there, you’ll be directed to the platform’s website where you’ll need to register for a new account and follow the instructions they provide. You may need to confirm your identity for KYC purposes, so make sure to have a piece of government-issued ID on hand.

From there, you’ll be guided through the different lending or borrowing options including how long you want your loan to be for, the LTV ratio, how much crypto you want to lend, what fiat currency or stablecoin you want to be paid out in, and more.

And that’s it, you’re well on your way to getting your crypto loan or lending out your crypto!

Featured crypto lending platforms

We have over twenty different crypto lending platforms listed in our Loans Marketplace. While we recommend that you take a look at all of the ones we have on offer, especially since a few offer lending or borrowing, here are some of our featured crypto lending platforms:

CoinLoan

Based in Estonia, CoinLoan is a P2P lending platform for crypto-collateralized loans. Since launching in 2018, it has become one of the most popular European crypto lending platforms. With a simple lending process backed by bank-grade security, it’s easy to see why. The platform offers one of the largest choices of cryptocurrencies, fiat, and stablecoins on the market.

CoinLoan’s lending process is simple. Borrowers deposit a specific amount of cryptocurrency as their collateral for the loan. Additionally, the platform is incredibly transparent. CoinLoan offers borrowers the added benefit of being able to preserve their crypto assets with flexible lending conditions, no credit checks, and convenient withdrawal methods.

As for lenders, CoinLoan offers several guarantees. The platform is registered and licensed in the European Union and is, therefore, subject to EU financial law, which offers unparalleled protections for consumers. Repayments are guaranteed, and all transactions are SSL-encrypted. In fact, since opening in July 2018, every lender has received their repayments in full and on time.

SALT Lending

One of the few platforms registered in the United States, SALT Lending was one of the first crypto lending platforms to hit the market back in 2016 and has continued to grow ever since. SALT Lending offers P2P crypto-backed loans. Similar to the other platforms we’ve listed, the platform allows users to use crypto as collateral for their loan.

The process for getting a loan is very straightforward. Users can be verified the same day, and don’t need to undergo a credit check. The terms of a loan are completely customizable. SALT Lending also operates in over thirty jurisdictions (including 46 US states), making it one of the most comprehensive when it comes to availability.

YouHodler

With offices in Cyprus and Switzerland, YouHodler is a fintech platform focused on crypto-backed lending with fiat, crypto, and stablecoin loans. The platform offers a high and flexible Loan-to-Value (LTV) rate, which is available at 90%, 70%, and 50%. As a result, users can obtain a higher credit line for a lower deposit. However, it’s important to note that YouHodler does not serve U.S. citizens, as well as citizens of China and Korea.

Another major advantage is that YouHodler offers its users access to instant cash, which is provided by the platform’s fiat-based funds. Unlike P2P crypto lending platforms, there is no need to find a creditor. The platform takes a different approach from most crypto platforms; YouHodler works with the banks instead of avoiding them. This allows YouHodler to partner with trusted fiat payment providers and hold its fiat funds in the most reputable banks in Europe to ensure their safety.

Conclusion - The ESelfKey Loans Marketplace

As you can see, signing up for crypto lending or borrowing through our Loans Marketplace is a simple and straightforward process. We encourage you to experience the marketplace for yourself and check out the many excellent crypto lending platforms we have on offer. We’re certain that we’ve got a platform that meets all your criteria!

As always, we advise you to do your own research about any crypto lending platform that you’d like to sign up with. We’ll continue to add more platforms over time, so keep an eye out for new announcements regarding the Loans Marketplace.

Cryptocurrency lending has the potential to take over the loans industry as we know it. In essence, it makes the process of getting a loan far easier and has far less requirements than traditional lending methods. However, for many, the idea of crypto lending still seems risky and in some ways, too good to be true.

Is crypto lending really that great? In short, yes! In this article, we’ll walk you through the many advantages of cryptocurrency lending and why you should consider crypto the next time you need a loan.

1. Crypto lending is more accessible

If you’ve ever applied for a loan at a traditional bank, then you know it’s a lengthy process. When it comes to traditional lending, your credit score matters and will determine how much money you are able to borrow. If you have a low credit score, you might not be able to get the funds that you require. There are several other factors that will also be considered, such as credit history and income.

Once you’ve found a bank that will offer you a loan, you will have to provide a wealth of personal information such as your social security number, proof of employment, bank statements, government-issued ID and more. Additionally, as a borrower you have little control over what the final loan terms are; the bank will dictate your loan amount and interest rate based on the above information.

Borrowing through a traditional bank can be a time-consuming process and nearly impossible if you have a low credit score or are unemployed. But what if you don’t have a bank account? Currently, 1.7 billion adults are unbanked, meaning that they have no bank account, which makes getting a traditional loan impossible. 

Cryptocurrency lending solves both of these issues. You don’t need a bank account and on the majority of crypto lending platforms, your credit score isn’t taken into account. Crypto loans have the power to help people get the funds they need when the traditional banks won’t even consider them. It makes getting a loan considerably more accessible than traditional methods and offers everyone financial freedom, which is why it continues to grow in popularity.

2. Crypto lending is faster

When borrowing from a bank, it can take anywhere from a few days to a few weeks for your loan to be approved. It is becoming more common for banks to approve loans on the same day, but it depends on a lot of factors. If you need a loan as soon as possible, obviously this presents some problems.

When it comes to cryptocurrency lending, most platforms will approve your loan within 24 hours. While confirming your ID is usually required, crypto lending platforms aren’t pouring over a stack of documents to determine if you are eligible or not. As long as you have cryptocurrency (or in some cases, fiat currency) that you can deposit as collateral and a piece of government-issued ID, you are eligible for a loan, which is why the process is so much faster. 

Some crypto lending platforms may take longer, especially if it’s a peer-to-peer (P2P) network that requires you to find a lender. P2P loans are not instant, and require cooperation between borrowers and lenders. If you want an instant loan, look into other platforms that don’t rely on a P2P network.

3. Crypto loans have more flexible loan terms

If you go to a bank for a loan, you don’t have much of a choice when it comes to your loan terms. The bank will ultimately determine your loan amount and interest rate, and while you can shop around at different banks, there isn’t going to be a big difference between financial institutions.

With cryptocurrency loans, the process is a lot more customizable. The borrower gets to determine how long they want their loan to be for, the loan-to-value ratio (LTV), and what fiat currency or stablecoin they want to be paid out in. The loan amount will depend on how much collateral you have, but the rest of the loan terms are pretty flexible, especially when compared to traditional banking.

Some crypto lending platforms have extremely flexible repayment terms. Some offer no minimum monthly payments as long as the loan is paid back in full by the end of the designated time. You can also find better interest rates; some platforms will offer a lower interest rate if you repay in a specific cryptocurrency.

Cryptocurrency lending platforms pride themselves on transparency, which means that the loan terms are clearly laid out and if there are any fees, they are clearly stated. When it comes to flexibility, crypto lending clearly surpasses traditional banking.

4. Crypto lending has lower fees

When it comes to fee structures, traditional banks are cumbersome. If you need your loan converted to a different currency for whatever reason, you’ll be hit with a large fee and a poor exchange rate. Ultimately, this means you are losing money, which kind of defeats the whole purpose of a loan.

With cryptocurrency lending, the fee structures are not only clearly laid out, but they are typically lower than those in traditional banking. There’s usually just a one-time service fee and that’s it. Additionally, if you need to be paid out in a different currency for whatever reason, you aren’t going to be hit by exorbitant exchange rates. So if, for example, you’re taking out a loan to help out a family member in another country, you can send the funds to them in their local currency or even as cryptocurrency to avoid high fees and a poor exchange rate at the bank.

The majority of crypto lending platforms provide you with options as to what currency you’d like to be paid out in. Some offer a combination of fiat currency and stablecoins, while others just offer cryptocurrency. Either way, you can always withdraw your stablecoins or crypto into whatever currency you need through an exchange. There are no limitations.

5. Crypto lending is safer

Many people think that their money is safe in a traditional bank. However, banks have been involved with nearly every major money laundering scandal in some way. Banks are run by human beings, who are naturally fallible, and often don’t have the best security measures in place, especially when it comes to technology.

Cryptocurrency lending seems risky to many because of the fact that it is simply a digital currency. However, crypto lending platforms are often far more secure than banks, simply because they have to be. The industry has actively been working to be more reputable, especially in terms of safety. In order for cryptocurrency to become mainstream, the world has to understand that it is just as safe, if not even safer, than keeping your money in the bank.

Any reputable crypto lending platform will clearly outline their security measures on their website. The best will go into detail as to how they protect your collateral. Ideally, 95% or more of user funds should be stored in cold wallets. This means that your crypto collateral is stored securely offline and is virtually impossible to hack. The best crypto lending platforms on the market store 100% of user funds in cold wallets.

Having a secure website is also paramount and any reputable platform will outline what securities they have in place to prevent things like DDoS attacks. Some cryptocurrency lending platforms go even further, and insure all digital assets on their platform. Securing your cryptocurrency is a priority for these platforms, as a failure to keep your crypto safe is a bad look for any crypto lending platform.

Conclusion - The advantages of cryptocurrency lending

While cryptocurrency lending is still relatively new to the loans market, it is making big waves and gaining popularity. As of January 2020, crypto lending has seen a boom in popularity which is expected to continue. The accessibility of crypto lending grants financial freedom to many, which has the potential to change the financial industry as we know it forever.

As a result, we’re excited to bring you the upcoming ESelfKey Loans Marketplace. The Loans Marketplace will grant ESelfKey Wallet users access to the world’s most exciting lending platforms and users will be able to easily compare and register for crypto lending services. This is an exciting prospect for the ESelfKey community and adds impressive new functionality to the Wallet.

If you want to start exploring the ESelfKey Wallet now, download it here and keep an eye out for the launch of the ESelfKey Cryptocurrency Loans Marketplace.

In this article, we explore why the United States is often left out by great crypto lending platforms, and how you can still get a crypto loan as a US citizen or resident.

Is crypto lending legal in the US?

In short, yes! However, the complete answer is infinitely more complicated. Many crypto lending platforms purposefully prevent US residents and citizens from borrowing and lending on their platforms. The reason for this is a little complicated, but worth diving into.

First of all, cryptocurrency and related crypto activities are perfectly legal in the United States, though it is not considered to be legal tender. The main problem the US faces regarding cryptocurrency is the lack of regulation, and this is why many crypto lending platforms steer clear. 

At the moment, there doesn’t seem to be a consistent legal approach to cryptocurrency in the United States. Laws vary greatly state by state, and federal laws can’t seem to agree as to what cryptocurrency actually is. For example, the Financial Crimes Enforcement Network (FinCEN) considers cryptocurrencies to be money transmitters, while the IRS regards them as property.

Cryptocurrency exchanges and crypto lending platforms also face much uncertainty when it comes to regulation. Several different regulators claim jurisdiction, and there has yet to be a cohesive approach. Policies vary greatly, which makes it a confusing market for many crypto businesses.

As such, a large amount of crypto lending platforms prefer to not get involved in the US market because it is too confusing. Many are choosing to stay away until more concrete laws and regulations are in place. Even US-based crypto lending platforms face struggles because the regulations vary state by state. For example, SALT Lending, one of the most popular crypto lending platforms and one of the few registered in the US, only offers their services in 46 states and some states have limited services. 

While the United States is making progress when it comes to crypto, it is far behind most modern countries. Part of the problem is that there is currently no dedicated government agency that sets crypto regulations in the US. 

Cryptocurrency loan taxation in the US

Another “turn off” for crypto lending, specifically when it comes to those looking to lend out their crypto to make a profit, is the taxation involved. As mentioned earlier, cryptocurrencies are considered to be property by the IRS, which essentially means it’s taxed like a stock. If you buy cryptocurrency and keep it for a year, you are required to pay long-term capital gains when you sell. For federal taxes, this means that you pay 15% tax on any gains.

In terms of crypto lending, a crypto lender has to identify if they are a hobby (or “self-employed”) or business lender for taxation purposes. There are a number of factors that determine whether a crypto lender counts as a hobby or business, and the taxation differs between the two.

For crypto borrowers, the taxation is more favorable. Depositing collateral, the payout of a loan, and the repayment of the principal are all non-taxable events. If a loan is for business purposes, interest payments can be deducted as an expense. However, if the loan is liquidated, then it will be treated as a sale and will have to be reported as a capital gain/loss.

How to get a crypto loan in the US

The first step is finding a crypto lending platform that offers their services in your state. Naturally, some states are far more accommodating than others when it comes to regulation, and you have a leg up if you live in one of these states. 

The top five states when it comes to cryptocurrency regulation are:

1. Wyoming - Somewhat surprisingly, Wyoming is the undisputed leader amongst the US states when it comes to crypto. In 2018, a bill was passed that defined “utility tokens” and exempted most of them from securities regulations. Digital assets have the same legal status as money, and banks are also allowed to store and administer digital assets.
2. Colorado - Taking a similar approach to Wyoming, Colorado is very welcoming to crypto. Additionally, the state is one of the few to make use of blockchain technology. The state government has rolled out a number of initiatives aimed at protecting the identity and personal information of residents through the use of blockchain.
3. Ohio - While not as advanced as the two prior states on this list, Ohio has made some impressive strides. The state legally recognizes blockchain data and has big plans to use it to protect the identity and personal information of residents. Ohio has made another impressive step in that businesses can pay taxes in cryptocurrency.
4. Texas - The first state to publish a memorandum declaring that no money transmitter license is needed to sell digital currencies, Texas has made big strides but still has a long way to go. In fact, the state was on the verge of passing a bill that would have banned the usage of cryptocurrencies between unidentified parties earlier this year. Despite all of that, Texas is a hub for Bitcoin mining and is one of the most stringent when it comes to noncompliance.
5. California - Amongst the first states to legalize crypto, California is home to some of the largest crypto companies such as Coinbase, Kraken, and Ripple. The state isn’t exactly at the forefront of crypto regulation, but is making big improvements. For now, the lack of regulation seems to be a bit of a blessing in disguise, as local businesses aren’t hamstrung by overly restrictive measures. 

If you don’t live in one of the above states, fear not. Crypto lending is on the rise, and many states do welcome it. Your best bet is to look for a crypto lending provider that is based in or operates out of the United States. Platforms such as SALT Lending, Unchained Capital, and BlockFi all allow US citizens to use their platform, although it may vary from state to state.

Once you find your preferred crypto lending platform, the process to get started is relatively simple. For borrowers, you will need to determine how much you want a loan for and how long you want the loan terms to be. Once you have selected your loan terms (on many platforms it’s completely customizable), your loan will be sent for review and then approved, sometimes within 24 hours. From there, typically you will be required to deposit some of your own cryptocurrency as collateral before receiving a loan. As a lender, the process can be even simpler. You will need to agree to the terms, deposit your crypto on the platform, and then start earning interest. 

Most crypto lending platforms will require that you verify your identity before getting started on their platform. However, most platforms do not require a credit check, which is part of what makes crypto lending so accessible.

As always, you should do your due diligence before committing to any platform and make sure you understand how the platform works. Any platform that is worth its salt will clearly outline the process and loan terms before you join. If you’re newer to crypto lending, check out our Introduction to Cryptocurrency Lending article to start your journey.

Conclusion - Crypto lending in the US

Crypto lending is on the rise, which is great news and gives hope that the United States will begin to catch up with the rest of the modern world. However, there is still a long way to go. In March of this year, a bill was proposed that aimed to provide a federal framework for cryptocurrency regulation, however it seems to be dead in the water. Additionally, part of the initial drafts of the CARES Act included the introduction of a digital currency, but the idea was ultimately shot down.

For US citizens, it's inevitable that the situation will eventually improve. Even without countrywide legislation, crypto lending is about to get a lot easier for US citizens and residents with the introduction of the ESelfKey Loans Marketplace. The Loans Marketplace will grant ESelfKey Wallet users access to the world’s most exciting lending platforms and users will be able to easily compare and register for crypto lending services. This is an exciting prospect for the ESelfKey community and adds impressive new functionality to the Wallet.

If you want to start exploring the ESelfKey Wallet now, download it here and keep an eye out for the launch of the ESelfKey Cryptocurrency Loans Marketplace.

What is a cryptocurrency borrower?

A cryptocurrency borrower is someone who is looking to take out a cryptocurrency loan. A borrower can be looking to take out a crypto loan for a variety of reasons. They could be looking to margin trade, take out a loan for their business, help fund a downpayment for a house, pay off other debt, or a variety of other reasons. 

Typically, there are two ways someone can borrow. The first is that a borrower can use their crypto as collateral and be paid out in fiat currency or stablecoin. The second is that a borrower can use fiat or stablecoins as collateral for a crypto loan, which is more common for activities like margin trading.

What is a cryptocurrency lender?

A cryptocurrency lender is someone who is offering up their cryptocurrency for loans. Lenders typically agree to loan as they are paid interest, and it’s a good way to make use of their crypto while still holding onto it. 

There are two different ways that someone can lend out their cryptocurrency. The first is a peer-to-peer lending platform, where lenders and borrowers are matched based on the terms of the loan. The second is that the lender’s crypto is added to a pool of funds. This means that lenders can start earning interest right away, don’t have to worry about finding a borrower, and their crypto is typically very well protected by the platform.

What does collateral mean in cryptocurrency lending?

In cryptocurrency lending terms, collateral means using crypto, altcoins, stablecoins, or fiat currency as a safeguard or warranty against the loan. That way, if a borrower fails to pay back their loan, the lender and the platform haven’t lost the value of the loan. Collateral also ensures that the borrower is more likely to pay back their loan in the first place.

Typically, collateral in cryptocurrency lending is in the form of cryptocurrency. Generally, a collateralized loan will have a much lower interest rate than a non-collateralized loan. Once a loan is fully repaid, the borrower will receive their collateral back in the wallet or account of their choosing. 

On most platforms, the most popular cryptocurrencies, such as Bitcoin and Ethereum, are accepted as collateral. Other platforms offer more niche altcoin options, but the interest rates may be slightly higher depending on the altcoin. A few platforms let you use fiat currency or stablecoins as a collateral for a crypto loan, but there aren’t many platforms like this currently on the market. 

What does principal mean?

Principal can refer to a number of different things, but in crypto lending terms, it refers to the original sum of money that was borrowed. You’ll often see it mentioned in the terms of a crypto loan; it will typically state the borrower has to pay back the principal plus the agreed upon interest. 

The amount of interest a borrower pays is typically determined by the principal. Generally a higher principal means a higher interest rate. In crypto lending, other things that can affect the interest rate are the Loan-to-Value ratio (LTV), the type of collateral, and in what cryptocurrency the loan is being paid back in.

What is liquidation in cryptocurrency lending?

A liquidation occurs when a borrower fails to pay back their loan within the specified loan terms. The platform then liquidizes the crypto that has been held as collateral in order to pay back the lender or the pool of funds. Usually, a platform gives plenty of notice before this happens, and it is clearly laid out in the loan terms.

Although liquidation is an unfortunate part of cryptocurrency lending, it is an important one. It lets lenders know that their crypto is being taken care of, and that the platform is ready to step in if a borrower defaults. Additionally, it deters borrowers who are looking for fast cash and have no means to repay the loan, which is why they have to use crypto as collateral.  As crypto lending platforms generally do not perform credit checks (which is one of the benefits of crypto lending), taking collateral is a way to ensure repayment if a borrower defaults.

What is Loan-to-Value ratio (LTV)?

Loan-to-Value ratio (LTV) is a financial term that is used in traditional banking and in cryptocurrency lending. It’s a term used by lenders to express the ratio of the loan to the value of the collateral. In crypto lending terms, LTV is pretty important as it is tied to the value of the collateral.

Typically, a higher LTV means that the crypto used for collateral is worth less. Some cryptocurrency lending platforms allow you to choose the LTV so that you can still get funds with less collateral. However, a higher LTV is also higher risk, so the interest rate is usually higher.

Additionally, the LTV may fluctuate over the course of your loan depending on the price of your chosen collateral cryptocurrency. As the price of crypto is constantly fluctuating, so does the LTV. When your crypto is worth more, the LTV will go down; when it’s worth less, the LTV will increase. As a result, some platforms will require that you deposit more collateral or repay your loan if the LTV reaches a certain percentage.

How are cryptocurrency loans repaid?

Paying back a crypto loan is usually pretty straightforward, but the process does vary from platform to platform. Typically, monthly payments need to be made, and in some cases, are automatically withdrawn from your account. Some crypto loan platforms will offer you a lower interest rate (and therefore, lower monthly payments) if you pay the loan back in a certain token. For example, Bankera offers better interest rates if you pay back a loan in their native token BNK. Additionally, most platforms accept early repayments, but double check that there aren’t any added fees for doing so.

As for which currency a loan needs to be repaid with, this varies depending on the platform. Normally if you are borrowing fiat currency or stablecoins, you will need to pay back the loan in fiat or stablecoins plus the agreed upon interest rate. A good rule of thumb is that you repay with whatever cryptocurrency, fiat currency, stablecoin or altcoin you borrowed in.

The terms for repayment are clearly laid out in the terms of the crypto loan, and the platform you choose should clearly outline it for you. If you are late to repay, you may be penalized with a higher interest rate, or in extreme cases, have your collateral liquidated. For example, Binance Loans only gives you three days before they liquidate your collateral. Make sure you understand the penalty for late or defaulted payments on your chosen platform before you apply for a crypto loan.

What is a good interest rate for cryptocurrency lending?

Interest rates vary greatly across the different crypto lending platforms, and it also depends on whether you are a lender or a borrower. The average interest rate for lenders is around 8% for stablecoins, which is far better than a standard savings account at a bank. This is why crypto lending has become so popular, because it allows crypto holders to earn money while holding onto their assets. However, beware of platforms that offer interest rates that seem too good to be true, because they generally will be.

As for borrowing, interest rates range greatly. It mostly depends on what type of cryptocurrency you use as collateral. As mentioned earlier, some crypto lending platforms offer a lower interest rate if you repay the loan in a specific cryptocurrency, altcoin or stablecoin. Do your due diligence on the interest rates offered by different platforms if you’re planning to take out a crypto loan.

Conclusion - Crypto Lending 101

While cryptocurrency lending is constantly evolving and still very much in its infancy, this article outlines all the basic terms you need to know to effectively explore the world of crypto loans. As always, make sure to do your due diligence before you start lending or borrowing. While there are dozens of great crypto lending platforms available, there are also some less than favorable ones.

If you’re looking to explore the world of crypto lending, we have a new addition coming to the ESelfKey Marketplace. Our next release is the ESelfKey Cryptocurrency Loans Marketplace where ESelfKey Wallet users can get access to the world’s most exciting lending platforms and use cryptocurrencies as collateral to withdraw fiat loans. This is an exciting prospect for the ESelfKey community and adds impressive new functionality to the Wallet.

If you want to start exploring the ESelfKey Wallet now, download it here and keep an eye out for the launch of the ESelfKey Cryptocurrency Loans Marketplace.

Borrowers promise to repay the amount they borrow, called “principal” plus an additional amount called “interest”. The moment the borrower receives the money it turns into debt, which is a liability for the borrower and an asset for the lender. These ideas are as old as recorded history, with the Sumerians extending credit as early as 4,000 BC.

It is unsurprising that the emergence of cryptocurrency has heralded new approaches to borrowing and lending. Starting with BTCJam and Bitbond in 2013, cryptocurrency lending has since evolved into one of the most diverse arenas in the field of distributed ledger technology. 

As we’ll see later, borrowing and lending in cryptocurrency has many significant advantages and may well be an important factor in attracting new users and driving adoption throughout the entire industry. 

The purpose of this article is to provide an overview of cryptocurrency lending and provide more details about our upcoming Loans Marketplace.

The Cryptocurrency Lending Ecosystem

In the introduction we briefly touched on the two parties that lending requires: the borrower and the lender. How these parties meet, perform the transaction and repay the debt depends on a multitude of factors. 

Typically, the borrower and lender will “find each other” on a crypto lending platform. Dozens of platforms exist and each has its own little idiosyncrasies. Broadly speaking we can split them up into two categories: 1) Centralized and 2) Decentralized. Let’s look at these in more detail. 

1. Centralized cryptocurrency lending platforms

Companies like Lending Club and Prosper where the first to popularise alternative forms of fiat lending. For cryptocurrency platforms at the beginning of the 2010s, they were the role models to be emulated.

When a platform is centralized, it typically takes responsibility for onboarding users, checking their KYC, providing a custody solution and managing payments. Centralized crypto lending platforms are usually businesses; Coinloan and SALT Lending are two prominent examples.

From a customer perspective centralized lending platforms differ meaningfully from decentralized platforms. First of all, centralized platforms typically offer an on and off-ramp with at least one fiat currency. This allows users to deposit or withdraw cash in exchange for crypto. 

On the flipside, the user gives up data when using such a platform. KYC information, credit card numbers, and postal addresses are just some of the data points that users have to share. 

Nevertheless, this does not seem to be troubling users. Genesis Capital, one of the largest players in the space, originated $3.1B in 2019 and $1.1B in Q4 of 2019. For such a young industry these are staggering numbers. 

2. Decentralized cryptocurrency lending platforms

As we’ve seen, centralized cryptocurrency lending platforms are akin to their fiat role models. Decentralized platforms on the other hand are completely different. 

Platforms like dYdX use Ethereum’s smart contract functionality to automate the distribution of loans and repayments. Typically KYC information is not collected and neither is any additional data. 

Borrowers simply connect their cryptocurrency wallet, define terms and wait for a lender who agrees to them. This makes decentralized platforms significantly faster and cheaper. 

That being said, there is usually little-to-no customer support and new crypto community members may be overawed by the lack of handholding. As mentioned previously, these platforms do not typically provide fiat trading pairs, meaning that only digital assets are available to both borrowers and lenders. 

According to the data analysis platform LoanScan, decentralized crypto lending originated just over $1.5B in loan volume, comprising more than 550,000 loans, over the last 12 months.  

How cryptocurrency lending works

Whether you decide to go with a centralized or a decentralized lending platform the basic tenant stays the same: Borrowers deposit collateral in order to receive fiat or digital assets in return. 

By focusing on collateral-based lending, platforms save themselves the headache of assessing the creditworthiness of borrowers and consequently risking high default rates. 

Users benefit from this approach because they are free to use the money for any purpose they choose. Traditional lending platforms, dictate how the loan must be used. Crypto lending platforms do not. 

On the other hand, the necessity to deposit collateral changes the nature of the loan. Crypto lending can better be understood as a short-term injection of liquidity, rather than as a business loan for example.

People who need to pay-off unexpected bills or want to make a big purchase right now, can deposit their crypto in return for cash. Once the principal plus interest is repaid, the collateral is returned to the borrower. This has proven particularly attractive to day traders. 

That being said, it’s also attractive to lenders because of the typically generous loan-to-value (LTV) ratio. This ratio describes the relationship between the amount that is borrowed and the amount of collateral that is provided. 

In the case of SALT Lending for example, borrowers can access between 30% and 70% of their collateral’s cash value. The higher the LTV the higher the annual interest rate, and the more expensive the loan. 

To illustrate this point, we can imagine a borrower asking for $10,000 over 12 months with LTV of 70%. This would require collateral worth $14,286. The interest rate would amount to 11.95%, leading to the loan costing $11,337.

Under the same conditions but with an LTV of 30%, the borrower would need collateral worth $33,333. The interest rate would be around 5.95% and the total cost of the loan would come down to $10,737. Ergo, the more security the borrower provides the lower the interest rates and the lower the cost of the loan. 

It’s worth noting that centralized platforms, like SALT Lending, typically have their own token which offers more attractive interest rates.   

What rates and fees can you expect?

Any introduction to Cryptocurrency lending needs to give a brief overview of the fees and interest rates both borrowers and lenders can expect. Please note however, that these change regularly, so please check the respective website before commiting to one. 

SALT Lending

• Minimum loan amount: $5,000
• Annual interests rates from 5.95% to 15% 
• Terms from 3 to 12 months
• LTV from 30% to 70%
• $0 origination or repayment fees
• 5% liquidation fee to resolve missed payments or cure the LTV in the loan

Nexo

• Minimum loan amount: $500
• Annual interest rate: 5.9% or 11.9%
• Terms: Repayment dates are up to the borrower
• LTV up to 80%
• $0 origination or repayment fees

dYdX

• No minimum loan amount
• Annual interest rate: varies depending on the supply and demand of the chosen asset. At the date of writing APRs range from 1.68% to 4.69%
• Terms: Repayment dates are up to the borrower
• LTV start at just 15%
• $0 origination or repayment fees

What are liquidations?

“Liquidation” is a key term in the cryptocurrency lending space. It describes the scenario in which the value of the collateral drops below a specified amount, and the platform or protocol is forced to sell it. 

This process is designed to protect lenders from significant losses during times of heightened volatility. One can imagine a situation in which a lender provides $10,000 in return for the equivalent in ETH, when suddenly the value of ETH plummets. The borrower is now no longer incentivized to repay the $10,000, because the deposited amount of 

ETH is now worth significantly less. 

Therefore liquidations are a common practice on both centralized and decentralized crypto lending platforms, and a term which all beginners should understand.

What are Defi flash loan attacks?

With all this innovation in the space it’s easy to forget how young the crypto lending industry is. Previously unknown attack vectors have been used to drain platforms and protocols of their money. 

Perhaps the most notable example occurred in February 2020, when an unknown attacker drained $350,000 worth of Ether from bZx. A few days later the attacker absconded with another $633,000. 

The attack leveraged so called flash loans, which allow for instant borrowing and repaying with no collateral. The idea is that I lend you as much money as you want for one single transaction. At the end of the transaction you need to repay the loan in full. If you’re unable to do so, the smart contract automatically revokes your transaction.

In this case, huge amounts of ETH were borrowed and then threaded through a sequence of vulnerable protocols. This resulted in the extraction of hundreds of thousands of dollars in stolen assets, which were then used to repay the ETH loans.

The Defi flash loan attack sent shockwaves throughout the industry, but the bZx team quickly rectified the issue and these should no longer be a danger to new users. Nevertheless it’s a great example of how new technology will be abused and how cryptocurrency lending still needs to mature.

Conclusion - Introduction to Cryptocurrency Lending

As we’ve discussed in this article, cryptocurrency lending is a very young but increasingly important area. Although key concepts are still emerging, developers have been quick to learn from their mistakes. The result is a thriving and maturing industry which is likely going to see rapid growth in the years to come. 

SelfKey’s upcoming Loans Marketplace will give you a handy overview of the best rates and terms for your needs. Download the ESelfKey Wallet today and be the first to try our Loans Marketplace when it launches.