Stablecoins Loans: Your Comprehensive Guide
A way to earn as much as 80% interest on your capital without worrying about market volatility.
The stablecoins world keeps presenting new opportunities, as you can now borrow a stablecoin loan for your crypto projects. Therefore, if you have been wondering how to fund your projects, these loans can be the breakthrough you need. However, there is a lot to learn about stablecoin loans before taking them. That’s why we have prepared this detailed guide to help you do so. This article will help you make better borrowing decisions and pick the best loan for your specific purpose.
What Is a Stablecoin Loan?
It’s a type of crypto loan offered by cryptocurrency lending platforms. Anyone can take a stablecoin loan, from individuals looking for money to renovate their homes to investors who want to expand businesses.
You must put up digital assets as collateral to get a stablecoin loan. The amount of collateral you put up determines how much you can apply for. You can choose whether to get the crypto loan in stablecoins or fiat currency on the lending platform. This gets rid of the need to change the asset into something else, which would make the whole process take longer and cost more.
Most platforms let you choose whether to repay the borrowed funds in full or in monthly payments, depending on what works best for you. This gives you more flexibility to work on your projects without feeling pressured. However, note that since your collateral is in crypto assets, they are likely to be affected by price volatility. So, if your assets enter a bear market and lose some value, you must add more collateral to meet the needed loan-to-value ratio (LTV). However, if your digital asset gains value, the added value can act as extra collateral. Or, you can withdraw it if your exchange allows that.
Many people love stablecoin loans as they give enough time to repay, and the minimum loan amounts are usually pretty high. For example, you can easily get a stablecoin loan of even $10,000, provided you have the required collateral. The repayment period would vary depending on your borrowing platform.
When you get a loan through some lending platforms, you can also use different digital assets as collateral. So, if you have Bitcoin, Ethereum, and Litecoin as assets and want to borrow stablecoins, you can use all of them as collateral without combining them into a single asset.
How Do Stablecoin Loans Work?
These loans involve three parties. The first is who is lending stablecoins to earn interest from the loan. The second is the person or business that wants to borrow money for a business or personal expense. The third is the lending platform, which acts as a middleman.
Obtaining a stablecoin loan involves the following steps:
Sign up for a lending platform and follow the required steps to activate the account and verify your identity.
Select the loan amount you’re applying for.
Deposit the required crypto collateral.
Wait for the loan to be approved. The amount of time you have to wait varies depending on your platform. However, the lending process takes about two days on most cryptocurrency lending platforms.
Why Do Institutions Borrow Stablecoins?
Most of the demand for stablecoins in the crypto industry comes from large institutions, like crypto exchanges. This is because they need enough liquidity to handle the endless activities on their sites, such as stablecoin lending. Also, when traditional cryptocurrencies like Bitcoin are in a bear market, most traders turn to stablecoins. This gives them a safe way to stay out of the crypto markets while they wait for volatility to go down. For all these transactions to go smoothly, crypto exchanges must always have a steady supply of stablecoins. And because there is a lot of trading, crypto lending platforms are always borrowing stablecoins to meet their liquidity needs.
Why Are Stablecoin Borrowing Interest Rates High?
If you recently tried borrowing a stablecoin, you were probably surprised by the high interest rate. This is mainly due to the huge demand for stablecoins in the crypto markets. There is always a constant demand, which pushes the interest rates for loans high. The supply is also quite low, further worsening the situation.
Since stablecoins are in huge demand, lenders can easily ask for a high interest rate since they know there are ready borrowers out there. When a cryptocurrency exchange wants to make more money by adding stablecoins, they also offer high lending rates to attract more lenders. This means that they will also charge high interest rates to people who want to borrow money from them.
Why You Should Borrow Stablecoins
Stablecoin loans have proven to be a great tool for most businesses, especially when looking for a fast and efficient way to access funds. So, here are a few reasons why we think you should consider taking a stablecoin loan:
They Enable You to Fund Projects Without Selling Your Digital Assets
If you have a huge project that needs funding and don’t want to sell your assets, then stablecoin loans are for you. With these loans, you can use assets as collateral and then get back to using them after you pay back the loan. That way, you can access money to complete all your personal or company projects while still hodling your digital assets.
They Are Easily Accessible
Stablecoin lending platforms make it easy to apply for a stablecoin loan. Stablecoin loans are usually processed within a few days, while bank loans can be hard to get and take a long time to get. Stablecoin loans are also cheaper since they don’t involve unnecessary transaction fees.
You Can Apply for Any Amount
Most people think that stablecoin loans are only for lots of money. This is untrue since some platforms allow you to borrow even small loans of $100. Therefore, stablecoin loans can also save you from small expenses when you're in a fix.
Click here to learn how to get a stablecoin loan.
Can You Borrow Against Stablecoins?
Many crypto lending platforms don’t accept using stablecoins as collateral. However, some, such as Nexo, allow you to use stablecoins such as USD Coin (USDC), and Tether (USDT) as collateral. Therefore, if you prefer to borrow loans against stablecoins, Nexo might be a great fit.
Most crypto investors prefer using crypto assets as collateral because that allows their assets to remain in the market and continue gaining value during the loan term. Therefore, if you would like to do the same, then borrowing against stablecoins is not for you.
Invite friends and earn up to $1,000, paid out in Bitcoin
775,000,000 USD for theft, hacking, loss of keys and more
Earn 2% more when opting to earn interest in NEXO tokens
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$100M insurance included
Earn higher interest and pay lower fees when staking their CLT token
USD Coin (USDC)
USD Coin (USDC)
Is Borrowing Stablecoins Safe?
Most stablecoin lending platforms have high-end security systems to protect your collateral from hacks. Also, most platforms are insured and regulated. So, even if they get hacked, you will not lose your investment. Additionally, regulated platforms adhere to strict regulations, meaning they can’t mess with your collateral.
Borrowing stablecoins is safe, and you don’t have to worry about losing your crypto collateral. However, lending platforms have different insurance policies and varying security measures. Therefore, it is still crucial that you do your own research to see what measures a lending platform has to protect clients.
Click here to see steps the best stablecoin and crypto lenders take to protect their users.
Pros and Cons of Borrowing Stablecoins
Advantages of Stablecoin Loans
These loans are easily accessible and allow you to continue hodling your digital assets during the loan term. The application process for a crypto loan is also easier and faster than borrowing from traditional financial institutions.
They don’t involve many unnecessary transaction fees.
Unlike a traditional loan, a crypto loan does not check your credit score or affect it.
You don’t borrow the crypto loan based on future income but on the available crypto holdings.
Disadvantages of Stablecoin Loans
You might suffer a loss if your collateralized assets enter a bear market since you’ll be forced to pay more collateral for the crypto loan.
They have high interest rates, which might make them quite expensive.
Your assets may be sold if you don’t repay the crypto loan.
If you have been wondering how stablecoin loans work and how to access them, we hope this article has answered your questions. So, we hope that you can now borrow stablecoins wisely. However, if you are still in a dilemma about stablecoin loans and have more questions, feel free to comment below. Also, consider browsing through our blog if you want to learn more about stablecoins.