Cryptocurrencies have become an important tool in DeFi because they can be used for peer-to-peer financial services without centralized financial institutions or banks.
DeFi, or decentralized finance, is a monetary system that uses public blockchains. Decentralized financing is very useful when it comes to credit management.
In general, the credit industry depends on access to banking services. If you do not have access to these services, you cannot take out a loan. This means that you need to have a good credit score or a bank reference that you can show to prove your eligibility for the loan.
With DeFi, things are different. The platform can eliminate communication problems between lenders and borrowers. In addition, it provides better credit checks and faster transfer of digital assets. There are many Ethereum-based decentralized finance programs that offer credit facilities.
What is a crypto loan and should you beware of it?
Unlike traditional loans, which often take days or even weeks to be approved, a crypto loan can be approved in just 24 hours without the stacks of documents required by banks. However, there are platforms that use a peer-to-peer (P2P) network, and as a rule, because of this, loan approval takes a little longer, as cooperation between the lender and the borrower is required.
Cryptoloans certainly offer an easier, faster and more affordable way to take out a loan. As cryptocurrencies continue to grow in popularity and move closer to global adoption, cryptoloans could be revolutionary, offering an alternative approach to lending.
Many people who own cryptoassets are usually looking for options to lock in currencies for the long term until they increase in price. However, there is another way to make a profit from cryptocurrencies, namely crypto lending. Investors can earn interest on these loans, which is passive income. This is a legal way to increase the value of cryptocurrency assets without selling off. There are many different crypto lending platforms with different interest rates.
How it works
Imagine that a crypto-lending platform acts as an intermediary between borrowers and lenders. Lenders tend to be crypto-enthusiasts looking for new ways to increase the value of their crypto-assets.
The second party involved in crypto-lending is a crypto-lending platform that takes care of lending and borrowing transactions. And borrowers are a third party in the process. Borrowers can be people or institutions that need financing. The system is quite simple:
1️⃣ Borrowers choose a lending platform and make a request for a crypto loan.
2️⃣ The Borrower makes a crypto-collateral, like a stake in the lending platform. A secured loan gives the borrower more time to use their funds in exchange for providing collateral.
3️⃣ Lenders can fund the loan automatically through a process invisible to investors.
4️⃣ Subsequently, investors can receive their regular interest payments from the lending platform.
5️⃣ If the borrower repays the loan in full, he can return the deposit.
The lender and the borrower agree on the interest rate of the loan. As a borrower, you can get a loan in traditional currency in exchange for your crypto-assets, which are used as collateral. Conversely, you can also borrow crypto assets and use traditional currency as collateral. Once the interest rate is agreed upon and the loan is approved, the amount is transferred to your bank account. Just like a traditional loan, you will then make equal monthly payments to the lender.
You can also take out a “flash loan” that works on the Ethereum network. This means an instant loan without collateral. However, since you won’t be providing collateral, you’ll need to get your money back quickly and in one transaction. Using smart contract logic, you can create a top-level transaction containing sub-transactions. If any sub-transaction fails, the top-level transaction will not be executed.
Advantages of cryptocredits
✅ Cryptoloans are issued to anyone who can provide collateral or return funds as an instant loan. Due to this quality, they are easier to obtain than a loan from a traditional financial institution, and there is no need for a credit check.
✅ The smart contract automates the entire process, making lending and borrowing more efficient and scalable.
✅ This is an easy way to earn passive income with minimal effort. Holders can put their cryptocurrency in a vault and start earning annual interest income without having to manage their own credit.
When acted responsibly, crypto-lending platforms provide value to both the borrower and the lender. Hodlers now have another option for passive income, and investors can unlock the potential of their funds by using them as collateral.
Whether you choose a DeFi or CeFi (centralized finance) project to manage your loans, read the terms and conditions carefully and make sure you’re using a reliable platform. Blockchain technology has simplified the access and provision of credit, making cryptoloans a powerful tool for generating income.
Flexible terms: Binance provides loan terms of 7, 14, 30, 90 and 180 days. Interest is calculated on the basis of borrowed hours.
Early repayment: close your crypto loan at any time before the maturity date without penalty. When you pay back the loan amount, Binance will only charge you interest based on the hours borrowed.
Use Funds Anywhere: Feel free to use your borrowed cryptocurrency anywhere in the Binance ecosystem, from trading to making payments. You can also withdraw funds if you want to use your funds outside of Binance.
Staking on loans: Some of Binance’s collateral options can also be staking to earn a cryptocurrency reward and reduce loan interest.
You can buy a bunch of different things for the received crypto credit, and this list is constantly expanding. From e-commerce products, jewelry to insurance.
Risks associated with crypto lending
Like any project, smart contract or investment in the blockchain, crypto lending is also associated with financial risks. For example, if you use an unstable coin as collateral, it can lead to liquidation.
Smart contracts can also be hacked, attacked or exploited, often resulting in large losses. Borrowing and lending can increase the risk of your crypto portfolio. While diversifying your portfolio is a good idea, using loans will add additional risks.
Before borrowing or lending, be aware of all the risks. Your coins may be blocked for a period of time, making it impossible to react to downturns in the cryptocurrency market.
To avoid such unpleasant situations, follow certain rules:
➡️ Be sure to use a reliable, proven crypto-lending platform and stable assets as collateral.
➡️ Pay attention to market conditions to understand when you can access your funds.
➡️ Familiarize yourself with the lending conditions. There is a huge choice of where to take a loan. You should look for better interest rates and favorable terms.
What does the cryptoloan process look like?
The Binance platform offers its users the opportunity to lend, borrow and receive interest on crypto-loans using a collateral method. Binance provides access to simple crypto-collateralized loans in many tokens and coins, including Bitcoin, Ether, and BNB. Funds for these loans come from users of the platform who want to receive interest from their cryptocurrency.
You can easily borrow cryptocurrency directly from your Binance account .
Log in to your account and then go to the Cryptoloans page.

1. Enter the amount and choose the cryptocurrency you want to borrow.
2. Select the asset you want to provide as collateral.
3. Select the term for which you want to borrow the asset.
4. Click Borrow Now.
What is LTV?
Loan-to-value (LTV) is the ratio of the loan to the value of the collateral. Traditionally, LTV is a credit risk score that is reviewed by financial institutions and other lenders before they approve a mortgage. Generally, loans with a high LTV ratio are considered high risk loans. Therefore, if the mortgage is approved, the loan will typically have a higher interest rate as well. Conversely, the lower the LTV ratio, the more likely the loan will be approved and the lower the interest rate.
Binance uses LTV to measure each individual’s credit risk. Note that each asset used as collateral has different initial LTV values, which means that when you choose different coins as collateral of the same value, the loan you take out also has a different value. If the LTV is higher than the liquidation LTV, you will have to increase the collateral or pay off the loan, otherwise the system will liquidate your collateral to pay off the loan.
The formula used to calculate the loan-to-value ratio is:
LTV = loan amount / collateral amount x 100%
Loan amount = principal amount + interest
How to avoid collateral liquidation
If you have pledged collateral for a cryptocurrency loan, when your LTV ratio reaches the margin requirement, you will receive a message prompting you to increase your collateral to reduce liquidation risk.
Liquidation occurs when a position is forcibly closed due to partial or total loss of initial margin. Binance does this to protect traders from further losses by reducing further exposure to the market. When the LTV ratio reaches the “Liquidation Call” level, it will force liquidation of your assets. A fee of 2% of the loan amount is charged for liquidation.
Due to the volatile nature of the cryptocurrency market, liquidation can be common for people who don’t keep track of their assets. In addition to disrupting your plans, liquidation also incurs unnecessary liquidation costs and may result in you losing your current market position.
To reduce the chances of liquidation, especially during extreme price movements, users are advised to regularly monitor their LTV and adjust it in a timely manner.
1. Log in to your Binance account.
2. Go to the Current Orders page under Binance Loans and click Adjust LTV.
3. Adjust the LTV by moving the LTV panel or manually add or remove the collateral amount.
4. Once the adjustment is complete, click Add Collateral or Remove Collateral to confirm the LTV adjustment.
Cryptocurrency loans are a simple and easy way to borrow additional funds. You don’t need a credit rating, interest fees are lower than for conventional loans and you can borrow up to 65% of the collateral value on Binance Loans .

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