As the world of decentralised finance grows, more and more features of traditional finance become applicable to it. One example is a loan, made in crypto rather than fiat currency. Can you get a crypto loan without collateral? How do I get a loan on crypto? You will find the answer in the following article.
Crypto loans in general
One of the crucial parts of decentralised finance (DeFi) is that it is designed to do things that traditional banking does, all while being available to people who do not have bank accounts. One of these services that it aims to provide is loans and, since DeFi is a key part of the cryptocurrency ecosystem, then it makes sense for some loans to be in cryptocurrency.
The principle is not dissimilar to how a traditional bank loan works. The person requesting the loan needs to show that they are able to repay it. This means, in practical terms, that the person who wants a loan will, ultimately, have to put up collateral. Since we are talking about crypto loans, this collateral will usually take the form of cryptocurrency itself. If the loan is unable to be repaid, then the organisation issuing the loan – traditionally, a bank, but in this case a crypto lending network – will take the collateral in return for the unpaid loan.
One of the first systems to support cryptocurrency loans was Compound, which launched in 2017. In a blog post written at the time, Compound co-founder Robert Leshner said: “As it currently stands, just about the only thing you can do is move your assets off of exchanges (where they are vulnerable to hacks & losses) and into your own control. And then… wait until you’re ready to sell.”
Therefore, Compound, at least in theory, opened up the doors for other networks, protocols and organisations to offer loans in cryptocurrency. Systems like AAVE, MakerDAO, Celsius, CoinLoan and even the controversial Binance exchange, offer loans in return for a deposit of collateral, which is kept if you default on the loan.
Someone might take out a loan in crypto rather than in fiat currency for a number of reasons. First, they might not have a good enough credit rating to get the amount of money they wanted. Second, they might be a serious crypto enthusiast who considers crypto to be a safer bet than fiat currency. Third, they might consider the rate of interest to be more advantageous to them than a traditional loan. Either way, there are some benefits to taking on a crypto loan that makes them attractive to potential customers.
Can you get a crypto loan without collateral?
However, what if you are in a position where you don’t have any digital collateral, or you are unwilling to put up your crypto as collateral against a loan? There are some services that can offer you a crypto loan without collateral, and we can talk about them here.
We do need to point out, though, that there are some things to be careful of in terms of trying to borrow crypto without collateral. First, cryptocurrencies can be incredibly volatile, so the real-world, fiat-currency value of what you borrow might end up being lower than it was when you took out the loan. This is true for all crypto loans.
Second, it is entirely possible that you might find yourself falling prey to a scam. You must be careful that you do not give out information that could leave you or your finances at risk, and you need to make sure that the crypto loan provider does not have a track record of deceiving customers.
Third, collateral free crypto loans can often have significantly higher rates of interest than regular crypto loans, so they could, ultimately, turn out to be very expensive in the long run.
So, who offers crypto loans without collateral? One of the most significant providers of this particular service is Goldfinch. This crypto organisation allows people called backers to provide capital, while people called liquidity providers donate their capital to the system’s liquidity pools. Meanwhile, borrowers make use of loans with off-chain collateral, while auditors are responsible for approving borrowers borrowing. This, in theory, allows people, who might want to get a crypto loan without having many digital assets to back the loan, to obtain a loan.
How do I get a loan on crypto?
Goldfinch was founded in early 2021 by former Coinbase employees Michael Sall and Blake West and the protocol’s coin came onto the open market in January 2022, making GFI one of the more prominent new tokens of 2022. According to a job advert: “Since announcing the protocol in January 2021, the loan book has doubled every two months. We now serve thousands of end-borrowers across three continents and over 10 different countries.”
Anyway, other than Goldfinch, Atlendis also offers a crypto loan without collateral. This system’s website argues: “Most DeFi applications require institutional borrowers to over-collateralise their loans using crypto as collateral, limiting the wide range of use cases possible with crypto lending.”
Atlantis claims to offer crypto loans without collateral in a way that allows it to “function as a revolving line of credit, giving borrowers flexibility for recurrent and short term liquidity needs.” Users have to pay a fee into a liquidity pool in return for being able to access a loan. The system allows lenders to choose who they lend their crypto to, and borrowers have to be approved in order to take out the loans, where the interest is paid on maturity.
While Goldfinch and Atlendis both appear to be at least relatively legit, there are other, less reputable, collateral free lenders. Again, we would urge you to do your own research and carry out your own due diligence before applying for a crypto loan. There is every possibility that, should you have to deposit off chain collateral, or make a donation to a liquidity pool, that someone could end up running off with your money. So, be careful, don’t get too greedy, and think before you sign up to a collateral free crypto loan.
Can you get a crypto loan without collateral? How do I get a loan on crypto? Hope this article can help you get some new ideas.
