Ethereum is a decentralized smart-contract platform, which began its development in late 2013 by renowned founders Vitalik Buterin, Gavin Wood, Joseph Lubin, and others.
It was released after an initial coin offering (ICO) in mid-2015.
The platform can run self-executing code, which enables the creation of decentralized applications on the platform. Transactions and computations are powered by its native currency, Ether (ETH).
Ethereum is home to the vast majority of popular decentralized applications (dApps) today, including major decentralized finance (DeFi) solutions such as MakerDAO, Compound Finance, and dYdX Protocol.
Ether Cryptocurrency Lending Rates
This abundance in supply means that you won’t get nearly as much of a return for lending your Ether on the open market.
Ether is also the only asset which is currently accepted as collateral on the MakerDAO platform, however this is due to change once the new multi-collateral Dai project is implemented.
Ethereum DeFi Lending Platforms & Dapps
The most-used DeFi protocol by far is MakerDAO, the protocol responsible for issuing the Dai stablecoin.
For Dai tokens to enter circulation, users must over-collateralize their Dai loans with Ether; until the multi-collateral version of Dai is released, Ether is the only coin which can be used to secure a Dai loan.
Being a stablecoin, Dai is a natural hedge against the usual volatility of the rest of the crypto market.
Taking out a Dai loan and using it to purchase other cryptocurrencies, on the other hand, can give you additional exposure to the wider crypto market if you expect prices to rise.
MakerDAO has a whopping USD$257m worth of Ether locked up in contracts at the time this was written, which makes up over 52% of capital used in all existing DeFi platforms.
Aside from MakerDAO, Compound Finance is currently the largest DeFi lending platform in the world.
More and more tokens are being added to the Compound platform over time, with new additions being voted upon by the community.
Each token comes with its own floating rate for loans, which is updated continuously on their website.
dYdX is a decentralized exchange based on Ethereum, and perhaps the only one of its kind to offer margin trading.
By locking up collateral such as Ether, users can borrow cryptocurrencies through the platform. These can be used both on and off the platform, for trading or other purposes.
As with the most other DeFi lending platforms, loans must be over-collateralized with the secured asset.
Best ETH Exchanges
Binance is one of the world’s most popular and well-established cryptocurrency exchanges, with a current daily volume of $842m (September 2019).
It is also an excellent place for trading Ether, providing an incredible 130+ ETH trading pairs. This makes it extremely easy to purchase and sell virtually any popular token using Ether.
Binance will soon launch a US-only exchange which is more limited in its coin selection, however the rest of the world is still free to trade all pairs.
ETH Trading Volume: ~$90M (September 2019)
Number of ETH Trading Pairs: 130+
Coinbase is well-known as the go-to exchange for first-time crypto buyers, and has been going strong since 2014.
They offer a narrower selection of cryptocurrencies than many other exchanges, but make up for this with their excellent reputation.
Coinbase also does an excellent job of streamlining the crypto-purchasing process, enabling users to buy cryptos including Ether with their credit card – all in a user-friendly way.
ETH Trading Volume: ~$16M (September 2019)
Number of ETH Trading Pairs: 8
Why is ETH great for DeFi?
Ether is the gas which powers all of the DeFi platforms we know and love. Without Ether, these platforms simply wouldn’t be possible!
Aside from this, Ether is the most widely-accepted cryptocurrency for use as collateral in securing DeFi loans – something which doesn’t look like it will change anytime soon. Ether is the second-largest cryptocurrency in the world, and will likely stick around for a long time.
Despite its volatility, Ether is slightly more stable than many other altcoins, and has extremely high trading volume compared to the rest of the cryptocurrency market. This makes it more liquid, accessible, and reliable for use in dApps and lending platforms.
Only stablecoins (most of which are backed or powered by Ether), are more stable in value and have comparable liquidity.
One of the best things about using Ether as collateral, is that you get to retain exposure to the coin while taking out your loan. If you use your borrowed coins to purchase more Ether or other crypto, you can effectively take a leveraged long position – all without using a margin-trading exchange!
ETH Lending FAQ
You can mimic a leveraged long on crypto assets by taking out a loan against your Ether in the form of more Ether, or another cryptocurrency.
By doing this, you retain the exposure to the value of your collateral, as well as obtaining further exposure to the coins which you are borrowing. By borrowing more Ether, you are effectively taking a leveraged long position on Ether.
You can achieve the same effect by borrowing a stablecoin against your Ether collateral, and using these stablecoins to purchase more Ether on an exchange.
Since Ether is so widely accepted amongst DeFi platforms, you can use it as collateral almost anywhere! All major DeFi platforms such as MakerDAO, Compound Finance, dYdX, Dharma, Nuo Network, and more will accept your Ether as collateral for taking out a loan.
Bear in mind that over-collateralization is the norm, and you will be required to secure your loan with around 150% of the loan value with your Ether.
The value of your collateral is an important thing to consider when taking out any DeFi loan. This is especially important when securing a loan against any asset that is not a stablecoin.
Most DeFi platforms will automatically liquidate your debt position if its value drops below a certain threshold in dollar value. If you see the value of your collateral falling, most platforms will allow you to lock up more collateral to save your position.
Check with your DeFi platform provider for their specific terms and conditions surrounding liquidating collateralized debt positions.