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If you've been following the cryptocurrency space for any amount of time, you may have noticed one trend emerging: crypto borrowing. More and more people are looking for ways to leverage their crypto holdings without actually selling them.
Crypto borrowing lets people borrow digital assets by putting up their own holdings as collateral. Lenders and borrowers can connect with each other through specialized platforms, making a decentralized financial ecosystem at the forefront of the Web3 transformation.
Borrowing against crypto gives you access to cash without having to sell your crypto, which is good for both parties. Join us in this article as we explore the details of crypto borrowing, the main platforms that facilitate it, its advantages and disadvantages, and the future direction of this innovative finance method.
Yes, there are now several platforms that facilitate crypto borrowing. All of these platforms allow you to use crypto or stablecoins as collateral to take out loans. EURK is a popular stablecoin option on these platforms given its transparency and 1:1 backing by fiat reserves.
Interest rates on these crypto loans tend to be significantly lower than those on traditional bank loans or credit cards since crypto collateral is more liquid than real estate.
Borrowing rates for crypto average around 5–10%, depending on the platform, loan size, and your creditworthiness. Rates are often lower if you choose to pay interest on your crypto deposits in their native tokens as well.
As we've described, borrowing in cryptocurrency involves using your crypto assets as collateral for loans, allowing you to monetize your holdings without selling.
The main advantage of crypto borrowing is that you don't have to relinquish ownership of your assets. Your crypto remains safely in your personal crypto wallet until you pay back the loan.
If the crypto increases significantly in value during this time, you keep those gains. You're basically able to spend or reinvest crypto loan proceeds while maintaining long-term upside potential in your original collateral.
EURK and other stablecoins make this even more reliable, as your collateral value stays stable. EURK is a euro stablecoin that is 1:1 pegged by euro currency and has reserves in Switzerland to maintain its peg.
Additionally, EURK is a secure euro stablecoin platform that empowers the realm of decentralized finance and provides stability, security, transparency, and efficiency in the crypto market. With a compatible euro stablecoin wallet, you can easily buy, sell, or exchange EURK.
Yes, beyond just borrowing against crypto collateral, there are now DeFi protocols that allow the borrowing of specific cryptocurrencies as well.
A leading platform for this is the decentralized lending market Aave, where you can deposit crypto or fiat stablecoins and borrow a variety of cryptocurrencies and stablecoins.
On Aave, you can borrow other coins up to a certain loan-to-value ratio without needing any collateral; only the crypto or stablecoins you deposit serve as your "backing".
Interest rates vary depending on supply and demand, but average around 2–5%. This allows easy access to crypto capital without liquidating your existing assets.
There are a few main reasons why people are increasingly looking to borrow against their crypto holdings:
In addition to the reasons why people borrow cryptocurrency, there are some specific and additional benefits associated with it, such as:
As the space matures, borrowing against crypto will provide even greater financial flexibility and opportunities for wealth creation compared to traditional lending sources.
As previously mentioned, the average borrowing rate for loans backed by crypto collateral ranges between 5 and 10%, depending on the crypto lending platform and the amount borrowed. Rates are often determined based on:
Additionally, some platforms may reward loan rates 0.5–1% lower if interest on deposits is paid out in their native tokens held long-term. Rates remain competitive with traditional bank borrowing. Therefore, it is essential to look at the rates on the crypto lending platform you choose before borrowing crypto.
The basic steps for borrowing against your cryptocurrency holdings as collateral typically include the following:
Many find taking out a DeFi loan with a stablecoin, such as EURK euro stablecoin, to be a straightforward, low-friction process requiring no credit checks. Just be mindful of liquidation protocols if the collateral value falls too low.
While borrowing against collateral is an option, on certain decentralized lending protocols, you can borrow specific cryptocurrencies without needing to deposit any collateral at all.
These "uncollateralized crypto loans" are based on the principle of over-collateralization by other depositors on the protocol. For example, on Aave, you can borrow stablecoins or cryptocurrencies by depositing another crypto or stablecoin as a "backing" for the loan.
As long as the protocol maintains an overall surplus of collateral from all users, it can facilitate borrowing below the collateral ratio on certain loans.
To maintain protocol stability, other users over-collateralized loans by at least 20–30%, and interest rates tend to be higher without collateral (2–6%).
But it does allow borrowing certain coins without needing your own crypto assets as security. Just depositing funds is sufficient.
Crypto borrowing continues to mature as an option for leveraging cryptocurrency holdings. Maintaining upside profits while accessing cash through low-rate loans creates great financial flexibility and opportunities for those with crypto.
Euro stablecoin platforms like EURK also help optimize stability when putting coins to work through cryptocurrency lending and borrowing. If you want to explore the benefits that EUR stablecoins have to offer for your crypto projects with EURK, become a partner today!
