Here’s Why Interest Rates on Cryptocurrencies Could Be a Game-Changer

ethereum lending

Like SALT, users must make a profile or register in order to use the platform. You can lend out or borrow ETH, LEND, DAI, or TUSD, and there are over 180 Ethereum tokens that can be used as collateral along with Ether and Bitcoin. Currently, the cryptocurrency lending sector is immature, with variable and volatile interest rates across platforms as well as among different sets of supported assets.

Coinbase Wallet also provides access to Web 3 Decentralized Applications (dApps) powered by Ethereum smart contracts. For borrowers, CoinLoan provides an opportunity to unlock the value of crypto while holding.

Nuo currently supports ETH, DAI, USDC, TUSD, MKR, BAT, LINK, KNC, REP, ZRX and WBTC. WBTC is a ERC20 tokenized coin pegged to Bitcoin, which allows to use decentralized DeFi services on Bitcoin. It’s not completely trustless though as you need to trust the issuer of WBTC to not lose their BTC reserves. By depositing crypto to Nuo you can earn interest on your funds without ever giving away control over them. Currently, users can only lock up Ether and borrow the DAI stablecoin.

To deal with this, DeFi lending applications such as MakerDAO let you borrow only 75 percent of your available collateral. In the simplest of terms, Ethereum is an open software platform that is built on blockchain technology. This enables developers to build and release decentralized applications to the world. On the Ethereum blockchain, miners work to earn their Ether instead of mining it as they do for bitcoin. Besides being a tradeable cryptocurrency, Ether is also used by dapp developers to pay for transaction fees and various services on the Ethereum network.

It’s not just rates that vary widely from one provider to another, there is also considerable variance in the number of assets supported. These operate entirely on-chain, therefore any assets supported by the protocol must also be supported on the underlying blockchain network. This limits the number of options for a lending platform to only ERC-20 tokens if the platform is built on ethereum, for instance. With new infrastructure facilitating blockchain interoperability and seamless asset transfer from differing chains, DeFi lending platforms could eventually support as many cryptocurrencies as centralized ones. DeFi lenders Compound and Nuo already support lending on wrapped bitcoin (WBTC) tokens, which are virtual representations of bitcoin on ethereum.

DeFi, in general, encompasses financial services which are transparent, decentralized, and trustless. Instead of having to go to a bank to get a loan, provide your ID and credit score, then have a human assess your situation and decide whether you can get the money, with DeFi it’s all algorithmic. A smart contract, with an open-source code available to everyone to check, handles everything. All you need is to provide some ether or ETH — the currency of Ethereum — or another crypto asset as collateral and choose what you want to do.

Interest rates on loans backed by and earned in crypto tend to fluctuate frequently, making any extrapolation of future value unstable. For example, interest rates on deposits for ether (ETH) paid to lenders have declined sharply from 1.3 percent to 0.01 percent on DeFi lending platforms Compound and dYdX in 2019. Interest rates for ETH on centralized lending platform Celsius also saw a decline from 4.5 percent to 2.75 percent in the same year. This could be a result of low demand for ETH loans propelled by poor spot-market performance of the asset.

Between June and December, ETH’s market price fell from a high of $334 to a low of $128. Interest rates for cryptocurrencies incentivize users to loan out their crypto assets because users can earn a higher return lending their assets than they can storing them in a personal wallet or device. Rates for lending cryptocurrencies coupled with strong demand for borrowing would free previously idle balances of capital for investing, trading and generating new market activity. Since the participants don’t know each other, DeFi lending is all based on collateral. Digital assets such as bitcoin (BTC) and ether (the native cryptocurrency of the ethereum network) are notoriously volatile.

Switcheo Network is the first decentralized cryptocurrency exchange on the NEO blockchain allows cross-chain swapping and trading of EOS, Ethereum and NEO tokens. Coinbase Wallet is a mobile crypto wallet supporting multicoin assets as well as ERC-20 tokens and ERC-721 collectibles.

  • These operate entirely on-chain, therefore any assets supported by the protocol must also be supported on the underlying blockchain network.
  • It’s not just rates that vary widely from one provider to another, there is also considerable variance in the number of assets supported.

Flexible Crypto Credit Line

In the most recent Credmark report, the total amount of crypto borrowed by users of crypto lending platforms increased by 23 percent to $900 million in the third quarter of 2019. Interest generated on these loans increased by 24 percent from $12 million to $16 million in the same time period.

This is enabled by the database principal of atomicity, in which one failed operation in a series will cause the entire operation to fail. Flash loans can be used for arbitrage opportunities or to shift collateral on a platform like Maker or Compound. To execute a flash loan does require some technical knowledge and ability to compose atomic transactions. These platforms tend to offer interest rates determined by the company, which often include notably higher returns for lenders of crypto assets like Ether (ETH) and Bitcoin (BTC) than their decentralized counterparts. Nuo is a decentralized peer-to-peer debt marketplace that enables anybody to lend or borrow cryptocurrencies through non-custodial smart contracts and no platform fees.

ethereum lending

But the difference is that, because of the collateral, Salt can allow borrowers to borrow more. When someone becomes a member, they can borrow money from an extensive network of lenders.

Borrowers put up bitcoin, ether, ripple and other blockchain assets as collateral. This is because Salt Lending, instead of determining the eligibility of a borrower by focussing on their credit score, grants eligibility on the value of the borrower’s blockchain assets. Salt keeps collateral assets safe in a “fully-audited, ultra-secure architecture during the life of the loan so members can borrow with confidence,” according to their website.

How The Nexo Instant Crypto Credit Line Works

Projects like Polkadot and Cosmos are actively building out functionality to support instantaneous transfer of all assets between blockchains. Users buy membership to the Salt Lending platform by purchasing Salt, which is the platform’s cryptocurrency. Smart contracts are contracts that, in addition to stipulating the terms of the agreement, also enforce and execute on the terms of agreement with cryptographic code. ERC-20 is a standard that anyEthereum token contracts must implement, in order to facilitating the exchange of tokens.

Why Choose The Nexo Platform

We could dive into more complex facets of Ethereum such as gas, smart contracts and more, but let’s instead analyze why this crypto is so good for an instant loan. Flash loans have gained significant attention lately after their usage in the bZx DeFi hack. These flash loans are a financial innovation enabled only through properties of decentralized finance and have a number of interesting use cases. With a flash loan, the user can borrow up to the full amount of free liquidity on a lending protocol, use that loan to execute other operations, and then pay back the loan at the end of the full transaction. If the borrower is unable to repay the full amount, none of the transactions will execute.

Due to the high volatility of blockchain assets, lenders need a substantial incentive to finance loans which are collateralized by blockchain assets. Those rates, while high, are actually not dissimilar to the rates seen on other unsecured loans.