Wednesday, 05 August 2020

Borrow with Bitcoin or lend with Litecoin? Crypto lending is set to boom.

One of the strongest emerging narratives in crypto is the sudden rise of cryptocurrency lending platforms. Multiple new platforms have launched and the demand for their services is growing. What is crypto lending and who are the major players?

The reason for the emergence of crypto lending platforms is simple - they solve a big problem for existing crypto users. Crypto holders now have an opportunity to leverage their crypto asset holdings without having to liquidate them. Prior to the introduction of these services, crypto owners would have to sell their digital assets if they needed access to capital.

This meant they lost the potential to realise long-term gains from holding the assets over time. Now, crypto users who want access to capital can receive loans using their digital assets as collateral. That’s a game changer as you can now get a loan, backed by your crypto, and use it to do anything from paying off debt to buying a home. All without having to sell any of your crypto assets.

Secondly, by depositing their assets with a crypto lending platform, crypto holders can now earn interest on their coins while still gaining exposure to long term upwards price movements. This is an exciting development for the community and a trend that’s expected to grow.

Crypto lenders can also provide a number of attractive features not always available in the traditional finance sector, such as easy-to-access microloans and more favourable early repayment options. Increasingly, crypto lenders are able to meet the needs of users who are unable to access traditional financing because of bad credit scores or other barriers to entry.

Tax events are a major headache for many crypto users. Now, crypto lenders can provide a pathway to financing which does not involve a tax bill for the crypto owner. In most jurisdictions, digital asset investors pay capital gains tax when realizing their investment returns. Additionally, if a crypto owner opts to exchange one digital asset for another cryptocurrency, they are liable to pay tax on the trade. However, in the US, leveraging your crypto to acquire a loan is not taxable.

It’s important to note that there can be security trade-offs with crypto lending. In some instances users won’t control their private keys meaning they need to have full trust in the platform they use. However, as we’ll see below, some crypto lenders have already developed solutions that address this.

Meet the crypto lenders:


Founded in 2017, BlockFi Lending LLC enables users to utilize their bitcoin, ether, and litecoin holdings to unlock capital in as little as one and a half hours.

BlockFi provides users with USD loans, which are deposited into the recipient's bank account in the form of USD or GUSD (Gemini Dollar). The US-based lender has attractive interest rates, starting at eight percent. The rates vary depending on other metrics, such as the amount requested, the recipient’s location and risk profile. BlockFi charges an origination fee of between one to two percent.

BlockFi stores customer funds with the Winklevoss-created Gemini Custodian. Gemini is a fully regulated digital asset exchange with no history of security breaches. Users can rest easy knowing they will have access to their crypto once their loan is repaid. BlockFi allows early repayments with no penalty.

Importantly, BlockFi also offer interest-yielding deposit accounts and the demand is growing. CEO and founder Zac Prince, told Coindesk that users have deposited more than $35 million worth of crypto, (80 percent of it in bitcoin), into their interest-bearing accounts since beta testing began in January. By depositing crypto with BlockFi, users can earn up to 6.2 percent, a rate far superior to a typical bank account.


Launched on April 8, Dharma has been a highly anticipated service due to its impressive funding rounds, having attracted $7 million from well-known venture capital firms, including Coinbase Ventures.

Dharma allows users to borrow and lend crypto assets in a non-custodial manner meaning that users retain the private keys to their crypto assets at all times. This is made possible by an innovation called the Dharma key.

Additionally, Dharma guarantees lenders a flat interest rate if a borrower picks up their debt. For borrowers, access to cryptocurrency without the need for a bank account or a credit score and without physical boundaries provides significant advantages.

The platform supports only ETH and DAI at present. However, the service provider supports any wallet, meaning users do not have to use Metamask as has been the case for similar services on the Ethereum blockchain.


The popular Switzerland based crypto asset lender Nexo was founded in 2017 and is backed by European fintech company Credissimo. Similar to its peers, Nexo allows users to access loans using their cryptocurrency holdings.

Users can access loans quickly once they have transferred a digital asset to the Nexo wallet. This happens with operational support provided for over forty fiat currencies to facilitate withdrawal. Nexo accepts a wide range of digital assets as collateral for loans.

Nexo provides a way to increase earnings or reduce fees if users utilize the NEXO token. There are no minimum repayments for loans, providing increased access to those seeking smaller loans.


SALT (Secured Automated Lending Technology) is a crypto lender that runs on the Ethereum blockchain. The US project was one of the earliest crypto lending platforms.

To apply for a loan, users join the platform and can then purchase SALT. If a user holds a SALT Token (1 or more) in their account, users can apply to borrow from a minimum of $5,000 up to a maximum of $25,000,000(USD).

The benefits of holding more SALT tokens come from staking. In this case, staking is used to reduce your monthly payments.

SALT allows borrowers to maintain equilibrium on their loans. Therefore, if the market moves dramatically in either direction, users can act accordingly. If the value of the collateral grows, the user can unlock more debt but if it drops significantly, they must put up more crypto asset holdings to restore the balance.


The Berlin-based bitcoin peer-to-peer lending platform Bitbond is one of the oldest players in the crypto lending space. Launched in 2013, Bitbond is a regulated service provider with a focus on providing bitcoin funded loans for small and medium sized enterprises.

To access or provide loans on the platform, users must complete KYC. Following a basic financial appraisement carried out by the platform, users receive a rating. The rating determines the chances of successfully opening a line of credit. The higher one's rating, the higher the probability of an approved loan.

Interest rates are dependent on the amount requested and the user’s rating.

Bitbond imposes no minimum loan quantity for both borrowers and lenders. Debtors can only have one active loan on the platform while creditors have the opportunity to earn up to 13 percent interest.

Legal disclaimer: The insight, recommendations and analysis presented here are based on corporate filings, current events, interviews, corporate press releases, and what we've learned as financial journalists. They are presented for the purposes of general information only, and all the information belongs to the original publishers. These may contain errors and we make no promises as to the accuracy or usefulness of the information we present. You should not make any investment decision based solely on what you read here.

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