On July 26, 2021, Binance released a blog post which explained what crypto loans are and what their use cases are:
“The fundamentals of crypto loans are very similar to traditional loans. A key factor where they differ is in how the funds are accounted for. With traditional loans, banks or other institutions use credit scores to calculate the amount of risk they can invest in a borrower. With crypto loans, credit scores are totally unnecessary. Instead, merchants can use their crypto assets as collateral that the lender will hold until the loan is paid off.
“Apart from this difference, the mechanics of the loan are technically similar. Crypto loans typically earn interest hourly, instead of monthly. Additionally, loan terms can be shorter than traditional loans. With crypto loans, traders can borrow from 7 to 180 days on platforms such as Binance Loans.
“The reason crypto loans work on such a short timescale is that cryptocurrencies are much more volatile than traditional currencies, which makes them riskier for both the lender and the borrower. If the value of a cryptocurrency drops drastically, the collateral a lender has taken could become far less than what was borrowed. Thus, hourly rates and shorter loan terms are applied.
“There are several reasons why a crypto loan may be attractive to investors. Traders often do not want to liquidate their assets, and when funds are needed, it helps to have the ability to open a loan. Another common use of a crypto loan would be to receive interest on assets. For example, traders can use BTC as collateral to acquire a loan in BUSD or USDT (any stablecoin). The collateral will likely be worth more than the loan itself, but once the loan is repaid, including interest, the collateral is returned. At this point, BTC may have appreciated, leaving the borrower with a profit.
“Another reason to use a crypto loan over a traditional loan is the speed at which funds can be acquired. BTC Loans can be acquired almost instantly, making your crypto assets extremely liquid and convertible, to capitalize on market opportunities quickly and easily.”
Here is some useful information about Binance Loans:
- “As long as you are a registered Binance user, you can borrow from Binance Loan.“
- Binance Loans supports borrowing 20 cryptoassets (including $BTC, $ALGO, and $BAT).
- Binance Loans supports the use of 20 cryptoassets as collateral (including $BTC, $BNB, and $DOGE).
- “Loan terms of 7, 14, 30, 90 and 180 days are available. You can always repay early and interest is calculated based on the hours borrowed.“
- “Interest is calculated hourly, and less than an hour is calculated as an hour. The interest rate is determined by when you make the loan.
- “You must refund them manually on the order page. Interest must be repaid before the principal.“
- “LTV is the value of your loan to the value of your collateral. The price used here is the index price. Different collateral coins have different initial LTVs, which means that when you use different coins as collateral of the same value, the loan you issue is also of a different value.“
- Collateral can “be used for staking to generate profit and deduct interest”.
May 25, Binance announcement that he had added $ADA and $AVAX as collateral assets on the Binance Loans platform.
The views and opinions expressed by the author, or anyone mentioned in this article, are for informational purposes only and do not constitute financial, investment or other advice. Investing in or trading crypto-assets involves the risk of financial loss.