How Crypto Loans Work
Blockchain technology has enabled several innovative financial products, and crypto loans, issued by crypto lending platforms, are one example. Similar to traditional banking systems, where borrowers provide assets or property as collateral, users provide cryptocurrency as collateral to lending platforms. In the DeFi market, both collateralized and non-collateralized loans are available, each with different risk levels for lenders. Typically, stablecoins are lower-risk assets, making them better suited to be used as collateral since their price remains relatively stable.
Lending platforms such as Compound and Aave allow lenders to deposit their assets into liquidity pools, which are then used to fund loans to borrowers. In return, lenders can earn interest based on the specific Annual Percentage Rate (APR) set by the platform, which may vary depending on the supply and demand for different cryptocurrencies.
Why Take a Crypto Loan Instead of Selling Your Crypto?
Cryptocurrencies are highly volatile, with ever-changing demand driving price swings. This raises an important question: why would someone risk locking up collateral in a loan, when that collateral could drop in value?
Many investors use crypto loans for strategies such as margin trading, to keep HODL positions while unlocking liquidity, or to deploy borrowed funds in yield farming and interest products, while some also use them to cover real-life expenditures without selling their crypto assets.
1. HODL Strategy
Suppose someone owns $10,000 of BTC and plans to hold it long-term for possible price appreciation, but also wants to spend some of the wealth. Instead of selling, he borrows $7,000 in USDT using BTC as collateral. This way, he access liquidity while still holding BTC for future gains.
2. Margin Trading
Profits in crypto trading depend on investment size and price moves. Borrowing increases capital, meaning small price swings give bigger profits. However, the downside is higher risk: if the collateral value drops below a set threshold, the platform liquidates it to cover the loan, potentially magnifying losses.
Selecting The Best Loan Providers
Unlike traditional loans, the amount a borrower can receive and the size of collateral they must deposit depend on market volatility, liquidity, interest rates, and demand for specific crypto assets. These factors govern the Loan-To-Value (LTV) ratio, which is the ratio of the loan amount to the collateral value. Most lending platforms typically offer LTV ratios of 25% or lower for volatile and riskier assets, meaning borrowers can take out loans worth up to 25% of the collateral they deposit, while benefiting from lower interest rates.
When selecting a specific lending platform, consider key factors such as:
- LTV ratio
- Liquidity
- Market volatility of the asset you want to use as collateral
Loans backed by stablecoins are generally preferable, offering lower interest rates and greater stability of value. In this article, we review the top five secure and reliable crypto loan providers.
1. Aave
✅ Loan Assets: 30+ (ETH, DAI, USDC, LINK)
✅ Top LTV: 75–80%
✅ Interest Rates: Variable
✅ Collateral Type: Overcollateralized
Aave is one of the best DeFi loan providers, known for flash loans and collateralized loans. This platform operates on the Ethereum blockchain (and is also deployed on other chains like Polygon) as a decentralized lending platform, enabling users to lend or borrow cryptocurrencies without relying on intermediaries.
Flash loans are an innovative financial service that allows borrowers to obtain loans without collateral, with the requirement that funds are repaid within the same transaction. These loans are not intended for long-term use but are instead utilized for short-term financial strategies such as arbitrage trading and debt refinancing.
Interestingly, Aave also supports collateralized loans with both variable and stable interest rates. Users have the ability to choose from a wide range of cryptocurrencies as collateral and also enjoy the flexibility to repay loans at any time.
2. Compound Finance
✅ Loan Assets: 20+
✅ Top LTV: 75%
✅ Interest Rates: Algorithmic
✅ Collateral Type: Overcollateralized
Compound is a prominent lending platform operating on the Ethereum blockchain. Lenders can deposit funds into liquidity pools, which are then used to provide loans to borrowers at dynamically determined interest rates.
Compound Finance functions as a decentralized autonomous organization (DAO), governed by a community of token holders. Its native token, COMP, is used for voting on governance proposals and protocol changes.
As a DeFi platform, Compound utilizes smart contracts to automate and secure transactions, providing a trustless financial system for users. Borrowers can take out collateralized loans, while interest rates are adjusted in real-time based on supply and demand for each asset. Lenders, in turn, can earn passive income by providing liquidity to the pools.
3. YouHodler
✅ Loan Assets: 50+
✅ Top LTV: 90–97%
✅ Interest Rates: Competitive
✅ Collateral Type: Overcollateralized
YouHodler is a centralized lending platform that offers loans in a wide range of cryptocurrencies. The platform is known for its unique features, including a high LTV ratio of up to 97%, approximately 79 collateral options, and advanced loan management tools. With a 97% LTV ratio, users can borrow up to $97 worth of crypto by providing only $100 in collateral.
The platform features a user-friendly loan calculator that allows users to easily adjust loan terms, and it also offers flexible repayment options. The combination of flexible loan terms, high LTV ratios, and competitive interest rates makes YouHodler a strong option for crypto loans. The service is accessible via both desktop and mobile application.
4. CoinRabbit
✅ Loan Assets: 300+
✅ Top LTV: 90%
✅ Interest Rates: ~1.586%/month
✅ Collateral Type: Overcollateralized
CoinRabbit is a centralized lending platform known for its user-friendly interface and flexible loan terms. The platform supports a wide range of collateral options, currently offering 300 cryptocurrencies. Users can take out collateralized loans and repay them at any time. Loans can be processed and approved within 15 minutes or less, depending on the collateral. Once the loan is repaid, users can typically receive their collateral back within an hour. To ensure security, users’ funds are stored in cold storage.
Additionally, CoinRabbit allows users to open savings accounts and deposit cryptocurrencies to earn interest. The Annual Percentage Rate (APR) varies based on the type of crypto asset, as well as its supply and demand. Users can also deposit stablecoins such as USDT and USDC to earn rewards.
5. Binance
✅ Loan Assets: 30+
✅ Top LTV: 65–80%
✅ Interest Rates: Competitive
✅ Collateral Type: Overcollateralized
Binance is a leading cryptocurrency exchange renowned for its comprehensive financial services. The platform offers a range of features including advanced trading tools, staking options, and a robust loan service for crypto investors.
Binance provides two types of crypto loans:
- Flexible-Term Loans – Over-collateralized loans with no fixed maturity date, allowing users to repay at any time.
- Fixed-Term Loans – Over-collateralized loans with a set duration and predetermined maturity date.
Both loan types support a wide array of cryptocurrencies for collateral and borrowing. Users benefit from flexible repayment options and transparent interest fees without hidden charges.
Moreover, Binance users can utilize the Binance Earn feature to deposit their assets and earn rewards through various strategies such as lending, liquidity farming, staking, and other investment products.
