Crypto Loans: An Amazing Business Idea?
The creation of digital currencies was just the beginning of the Crypto-verse of Things. The rise of cryptocurrencies urged the launch of new trading exchange platforms as well as the creation of revolutional digital products and services – crypto loans among them.
Crypto online loans is an amazing business idea that will drive the growth of the global Crypto economy, opening a new door to the financial sector that has been monopolized by banks.
How Does it Work?
Anyone can take a peer-to-peer loan. To understand how it works, let’s have a look at a simplified example.
To borrow money against cryptocurrency, you need to register with a digital lending platform. Lending platforms are similar to trading exchanges, but offer lending solutions to borrowers, bridging the cash and cryptocurrency gap.
Once you become a member on a lending platform by registering and accepting the terms, you will be able to borrow money from a network of lenders, putting up cryptocurrencies – mostly, Bitcoin – as your collateral. When the loan is paid back, you get your collateral back.
The Basic Steps to Apply for a Crypto Loan
Here’s a quick summary of what steps need to be completed to take a crypto loan:
- Choosing a lending platform;
- Creating a user profile, which is likely to include KYC. Find out why it’s important here;
- Requesting a loan;
- Finalizing the amount, duration, and other terms of the loan;
- Getting matched to a lender.
There are a few things to keep in mind.
Registering with a lending platform and becoming an approved user is no guarantee that a sufficient pool of liquidity is available at the time of your loan request. If all the funds provided by the network of lenders are lent out, you will have to wait for either active loans to be paid back or for more lenders to enter the network.
Requesting a loan, a smart contract is generated in the system with the terms that you specified. Similarly to banks, if you fail to abide the terms of the smart contract for your online lending loan, your collateral is forfeit.
Types of Crypto Loans
Online consumer lending is generally made for two purposes:
- personal use,
- margin lending.
A margin loan means that you lend your bitcoins or altcoins to traders to receive interest. Margin traders use your holdings for leverage transactions that require additional capital to maximize potential profits.
Lending Cryptocurrencies as a Business Idea
If you own any tokens, cryptocurrency lending is an easy way to get additional income, especially, if you don’t have much time on your hands to deal with your digital funds or if you are planning to sell your tokens in the short-term.
If you’re looking to make passive income, you should look into cryptocurrency lending as a great alternative that requires few physical and intellectual resources.
Becoming a Lender
To make your cryptocurrency holdings available to borrowers for lending, you need to register with either a platform or an exchange.
Most platforms and exchanges have fully automated processes. Your holdings will be lent at a certain – and quite impressive – interest rate, whereas the automation will ensure that the interest rate and the loan are paid back to you.
FYI, margin loans are lent short-term, usually, for no longer than two days. The average interest rate is in the range of 12-20% – very attractive.
The biggest advantage of being a lender is that the borrower, i.e., trader, is the one who risks the most. The loss incurred by a single bad trade is theirs. As a lender, you need to make sure that you don’t lend big amounts for long periods of time.
Lending platforms can be hacked, so lend small, not life-changing cryptoasset amounts. As to lending long-term, you might simply be missing out on good trades.
Are There Any Cons to Margin Lending?
Surprisingly, there are very few disadvantages to margin lending.
We’ve already mentioned the potential risks related to possible hacks and missed opportunities. What also needs to be highlighted is that you must remember you’re dealing with a market that lacks regulation. If anything goes wrong, and it might, legal matters will be settled as per your local jurisdiction. Our advice is to find out more about it before you start lending.
Also, some lending platforms may charge high commission fees for their services and interest rates may be set on a daily basis – a common practice – which means that your potential daily profit is hard to predict.
Blockchain + Loan = Blockloan
People have been lending money for what seems to be forever as it is one of the surest ways to put your capital to work. Blockloan (blockchain + loan) is the technology of the future when it comes to short-term loans for personal use and margin trading.
If you’re interested in finding out more about blockchain technology or particular altcoins, here are some super good and useful reads from our blog:
- Blockchain: Explained in Plain English
- A Comprehensive Guide to: Bitcoins
- A Brief Introduction to Ethereum
Remember that we always want to hear from you. If there’s anything on your mind, don’t hesitate to leave a comment in the section below or contact us directly.
The CoinMetro Team