What are Crypto Loans?
A Crypto loan is a type of loan that requires a portion of your crypto asset as collateral until you repay the loan. Unlike a traditional loan, you don’t need to calculate your credit scores to know the risks or how much you can borrow. Instead, the lender only needs to hold a portion of your asset as collateral until you repay the loan.
Cryptocurrency traders understand the risk and volatility involved in trading. As a result, holding digital assets can be challenging during stagnant markets, especially when you need funds. Instead of liquidating your assets, you can use a crypto loan as a funding source.
Crypto loans involve taking cryptocurrency from a user and providing it to another user for a fee. The service is available on centralized and decentralized platforms, and the method of managing the loans varies from one platform to another.
The entire lending process involves three parties: the decentralized finance platform or a crypto exchange, the borrower, and the lender.
Most times, the loan taker is required to put up collateral before borrowing. However, there are flash loans that don’t require collateral. On the other hand, a platform lends out funds from another user or uses a smart contract to mint stable coins. Lenders include their assets to a pool that manages the process and remits to them a cut of the interest.
There are different types of crypto loans offered by various platforms, including Binance.