Today, we can proudly say that we are not only living in a digital but the crypto world. Yes, the term digital money still doesn’t mean much to some people, but the vast majority is familiar with the terminology and the concept of these new currencies as well. The whole concept may look complex, but one doesn’t have to be a rocket scientist to understand what it means and how it all works, to determine the pros and cons, and decide whether to invest in cryptos or not. On the other hand, every single crypto investor will mention that it is a great new opportunity to earn money and a quite profitable one, for that matter.
Of course, in order to make money this way, one has to have some knowledge first, which is why doing the necessary research before taking any action is a must. Once you have done your homework, it is time to choose how and where to invest, which is yet another “obstacle” that we are sure you will successfully accomplish with proper guidance. Understandably, each type of investment brings certain risks, but that’s nothing new, and what’s new is the most popular one, at least among those who prefer to HODL their cryptos, and it’s called crypto lending. So let’s check out some facts first.
What are crypto loans?
As the name says, it is about borrowing or, to be more precise, lending money, and we already mentioned that those who HODL are usually the ones who choose this option, as they don’t want to spend theirs. The usage of digital money is widely accepted as some renowned companies accepted it as a payment method, and this is the main reason why people simply need cryptocurrency today. One can also use cryptos as collateral for taking a loan, and that’s where crypto loans step in, as this type of loan is a collateralized loan.
Like with any other loan type, borrowers have control over the crypto assets, which they can use in case of no repayment. The term might confuse someone, but the concept is pretty much the same as with any collateral loan.
How does it work?
Two interested parties, the borrower and a lender, first need to agree on an interest rate, and, after that, the money is being transferred into the lender’s account. When the sum is paid back to the lender entirely, the cryptocurrency that acted as collateral is brought back to the borrower. Crypto landing is the same process as the one when we borrow fiat money from the bank, and the only difference is that we use cryptos instead of fiat money.
Some platforms are not reliable
Many platforms are using cryptos from borrowers and lenders for their own transactions. That means that platforms are using our money to hedge funds and make exchanges by lending it to many institutional investors. It is not a problem when we use a reliable platform that does not has problems with returning money, but we need to be careful since the cryptos are highly volatile, and we can never be sure. The problem occurs when the counterparty to these transactions does not have enough funds to return the loans, and in that case, we are the ones who leave without our money, besides the platform. The best option is to use DeFi providers because they do not use our money like their own, and the third party does not have access to it. If they use our money for transactions and exchanges they can lend it only to existing users on the platform, so there is no risk of losing it.
These currencies are highly volatile
High volatility is something that every crypto user should be aware of, especially when it comes to loans. Since these currencies are highly volatile, their price is changing all the time, which can lead to returning more money than we borrowed. It is something that no one can predict, so when it comes to this type of loan, all we can do is hope for the best and expect the worse.
They are not regulated
Cryptocurrencies are decentralized, which means that they are not regulated by state or bank laws. It is a big advantage because we can use them in the whole world under the same terms, but it can be challenging when it comes to loans because you don’t have any proof that you are doing a legal action. That does not mean that these loans are illegal, but it is the fact that they are still not regulated like it is the case with banks and their loans.
They have the bright future
Cryptocurrencies are with us for some time now, and during that period, they only had more and more users. The reasons for that are numerous, and one of the main ones is that we can use them around the world as one universal currency. Because of that, crypto loans were the logical next step because many people need help with starting this journey. We do not know what the future can brings to us, but one thing is almost certain-cryptos, and their loans will be with us for a long time for sure. These loans will probably be better regulated, and many people will not be afraid to use them anymore.
From everything mentioned above, understanding what crypto loans are, how they work, and how safe they are should be much clearer. Nonetheless, the concept is the same, meaning that everyone who already got some collateralized loan before should know what to expect. Of course, like we already mentioned, doing research is always helpful, as one can never be too safe while online, and especially when it’s money-related. That is why those who need more info on this topic or just want to check everything twice before they take one should check out btsr.io, as it is one place where you will find everything about crypto loans you may need.