Crypto Loans for May 2020

 
1.24% 5.14% 3.07% 5.26% 4.35% 3% 0.5%
5.02% 4.68% 5.42% 13.29% 5.91% 1%
2.06% 1.64% 2.8% 3.68% 1.07% 1%
1%
3.5% 4.67% 4.28% 0.45% 1.75%
8.09% 6.83% 8% 2.19%
4.14% 1.45% 1.5%
6.07% 8% 4.72% 2.29% 1.37%
2.54% 8% 3.31% 0.35% 1.75%
2.87% 2.3% 0.35% 1.25%
2.75%
2.25%
4.49%
1.5%
2%
3%
1.25%
8% 3.27% 0.13%
0.01%
8% 2.8% 0.21%
2%
0.69%
1.75%
4.9% 13.48%
8% 4.87%
3.41% 4.72% 3%
9.13% 8% 6.4% 3.5%
1.25%
4%
1.75%
 
1.62% 5.22% 2.71% 4.51% 4.98% 0.5%
4.36% 3.61% 5.37% 17.05% 5.33% 1.12%
2.07% 1.76% 2.11% 3.49% 0.8% 1%
1%
3.68% 6.25% 3.52% 0.52% 1.75%
8.73% 8% 3.43%
3.1% 1.9% 1.5%
7.55% 8% 5.81% 2.57% 1.5%
2.69% 8% 4.45% 0.55% 1.75%
3.06% 2.34% 0.35% 1.25%
2.75%
2.25%
4.86%
1.5%
2%
3%
1.25%
8% 3.01% 0.41%
0.01%
8% 3.65% 0.2%
2%
3.36%
1.75%
6.12% 14.62%
8% 11.62%
6.55% 5.02%
7.63% 19.81% 8.19%
1.25%
4%
1.75%

Perhaps one of the most exciting aspects of Decentralized Finance (DeFi) is the ability to take out a loan on top cryptocurrencies at any time in an entirely permissionless fashion.

By using smart contracts, borrowers are able to lock collateral to protect against defaults while seamlessly adding to or closing their loans at any time.

This page is geared at those looking to dive into the exciting world of DeFi borrowing, and our top picks on the platform to take out a cryptocurrency loan.

An Overview of DeFi Loans:

Here are some key characteristics of DeFi loans:

  • Permissionless – Anyone can borrow cryptocurrencies without having to undergo KYC or get permission from a third party.
  • Automated – Loans are automatically dispersed at request, with positions being liquidated if a collateralization ratio falls below the predefined threshold.
  • Non-Custodial – With DeFi loans, there is no need to transfer ownership of their underlying collateral. All funds are secured by smart contracts, with the borrower being responsible for maintaining that position.
  • Secure – Major borrowing protocols have been rigorously audited, meaning that funds supplied to loans are backed by the most robust code in the world.
  • Dynamic – The vast majority of borrowing in DeFi leverages variable interest rates which shift relative to the utilization ratio of any given asset.
  • Perpetual – DeFi loans can be opened for any amount of time, so long as the debt is paid back and the position is sufficiently collateralized

Top Picks

When it comes to cryptocurrency loans, there is an increasing amount of DeFi platforms available to do so. In this section, we’ll describe our top picks, along with some of the reasons as to why borrowing on them is unique.

Aave

As a borrowing platform offering the most diverse amount of loan types, Aave is quickly becoming a market leader in the DeFi sector as a whole. The protocol features roughly 20 of the most popular cryptocurrencies including most major stablecoins and DeFi tokens like SNX, MKR and KNC.

Interest Rates: Fixed or Floating

Why Borrow from Aave?

  • When taking out a loan on Aave, users can choose to lock in either a fixed or a floating interest rate, providing a degree of flexibility which other lending platforms currently do not offer
  • Aave has become a primary source for Flash Loans – or the ability to borrow an unlimited amount of assets so long as they are paid back in the same block. This feature has proved useful for preventing Maker Vault liquidations and taking advantage of arbitrage opportunities.
  • Aave recently released a Risk Framework which clearly displays a different rating (from A+ to D-) for assets on the platform. This gives users a clear idea as to which assets are the safest to take a loan on at any given time.
  • Trade with leverage on Aave borrowing rates using Swap Rate
  • Borrowing fees are incurred at inception, meaning there are no “gothchyas” when repaying a loan.
  • Loans can be insured using Nexus Mutual

Read our full review on Aave

Compound

As the sector leading lending platform, Compound has long established itself as having a strong foundation for trusted cryptocurrency loans. While Compound supports fewer assets than Aave, it boasts very liquid capital pools and has been trusted many DeFi protocols as a base for other interest-earning primitives to emerge.

Interest Rates: Floating

Why Borrow from Compound?

  • As a leading US-based company, Compound has proved itself to be a reputable provider with a strong reputation and backing from top investment firms
  • Compound currently has the most underlying collateral of any lending protocol – meaning the capacity for loans is quite high
  • Using tools like Swap Rate and Opyn, users can hedge against variable interest rates and lock in fixed rates on loans
  • Borrowers can insure their loans using Nexus Mutual
  • Users can leverage asset management tools like Zerion and DeFi Saver to manage their Compound loans.

Read our full review on Compound

Maker

As the creators of Dai, Maker has created quite an interesting cycle for taking out a loan on a stable, trustless asset. Using Oasis Borrow, users can lock collateral (currently ETH, USDC or BAT) to mint Dai. Locked collateral incurs a “Stability Fee” which can be paid back at any time.

Interest Rates: Floating

Why Borrow from Maker?

  • As a stablecoin, it’s easy to know exactly how much debt will be owed on any given loan
  • Users can easily re-collateralize or draw additional Dai directly from the Oasis dashboard
  • At the time of writing, there is currently no fee to take out a loan on Maker.
  • Asset management tools like DeFi Saver allow users to leverage automated tools to ensure Vaults are sufficiently collateralized, even in times of high volatility.
  • Maker Vaults are integrated into other asset management tools like InstaDapp or Zerion for easier tracking.

Read our full review on Maker

dYdX

As a hybrid DEX, lending, and margin trading platform, dYdX is a great way for users to “borrow” cryptocurrencies to open leveraged loans on ETH and soon BTC.

Interest rates: Floating

Why Borrow from dYdX?

  • Opening a loan on dYdX does not incur a transaction fee
  • Users can borrow USDC, DAI or ETH to open up to 5x leveraged positions on ETH
  • dYdX recently introduced perpetual futures, meaning users will be able to open up to a 10x leveraged position on BTC
  • dYdX uses cross-margin, meaning users can pool together all their assets on the platform, rather than using only one.

Read our full review on dYdX

Key Points to Consider

While we’ve listed our top four picks above, there are dozens of other platforms for users to take out a cryptocurrency loan. Here are some things to keep in mind:

  • Relative Rates – Rates on loans can change quite frequently, so be sure to keep a close eye on the market pair as the rate a borrow is started with is likely to differ from its rate when the loan needs to be repaid.
  • Custody – Be sure to note if a loan is custodial or non-custodial. It’s important to ensure the underlying collateral backing the loan has as little attack vectors as possible.
  • Audit History – All borrowing protocols should have received a number of audits before their official launch. Please take a moment to research if a borrowing platform has a reputable audit history before supplying capital.
  • Beta Mode – Many borrowing protocols are likely to indicate the current stage of their project. It’s ok to use a platform which is in beta, but please be advised this means there is a higher degree of risk.
  • Social Presence – Projects which have community-backing are often most active on social media. If you’re on the fence about borrowing from any given protocol, check out their Twitter to see if the community in engaging with their posts as a signal of trust.

DeFi Crypto Loan Platforms [2020]

DeFi loans are largely characterized by non-custodial, dynamic, floating interest rates. This includes:

Centralized Crypto Loan Platforms [2020]

Centralized loan protocols are largely characterized by fixed interest rates in which assets must be transferred and locked for a predefined period of time.

Popular Cryptocurrencies to Collateralize Loans With

Whereas with lending we’ve seen that stablecoins are the most lucrative option to supply as capital, we’ve seen quite a different trend emerge with cryptocurrency loans.

Ether (ETH)

Ether is the “fuel” that powers Ethereum and is primarily used as payment for transacting on the network.

Due to the liquid nature of ETH, we’ve seen the vast majority of borrows being dominated by ETH as collateral.

While ETH remains a volatile asset, it is supported by virtually every borrowing platform and has quickly emerged as the leading asset to supply as collateral for a cryptocurrency-based loan.

Bitcoin (BTC)

Building off the liquid nature of ETH, Bitcoin is quickly making it’s way to DeFi, largely in the form of borrowing.

Solutions like Atomic Loans allow users to post BTC as collateral and receive stablecoins like USDC or DAI in return.

While we’ve also seen a number of token wrappers emerge (tBTC, wBTC, pBTC, etc.) it’s clear that many are looking to capitalize on the vast market size Bitcoin offers as the leading cryptocurrency. Across the board, it’s evident that users are largely borrowing against assets with high market caps and liquid capital pools.

FAQ

Are DeFi loans safe?

We are strong believers that using any of our top picks to take out a cryptocurrency loan is as safe as borrowing in legacy markets. Please note there is always a slight degree of risk with any borrowing opportunity and that you should never borrow more than you will be unable to repay.

Why do interest rates change?

Floating interest rates change in response to the utilization ratio of underlying capital pools. If there is a vast amount of capital available to be borrowed, the rate to do so will be quite low. As that pool gets used more, loan rates will get higher.

What do people use cryptocurrency loans for?

It’s common for loans to be used to re-collateralize debt positions, participate in liquidation auctions or trade on margin using exchanges like dYdX.

What do I need to get started?

Virtually all DeFi protocols are accessed using a web3 wallet like MetaMask. To get started, users simply need to supply their wallet with a small amount of ETH to pay for transactions and whatever capital (in the form of the supported cryptocurrency) they wish to supply as collateral to borrow against. A list of supported currencies across different borrowing platforms is provided on the chart at the top of this page.