Ever since its tumultuous stint in 2018, the crypto market has been on the rise. Experts believe that this is due to the emergence of new and formidable financial applications that promise to change the way we access financial services. At the heart of this turnaround is the budding crypto lending sector currently pushing new paradigms in the DeFI and CeFI terrains.
Without any doubt, this sector’s success hinges on a flexible approach to lending and borrowing. Thanks to this system, the concept of creditworthiness is no more a core requirement in loaning processes. Likewise, the era of cumbersome loan applications has ended. With crypto collateralized loans, it is possible to access funds almost instantly. More importantly, the borrowing rates are unbelievably low, especially when compared to bank rates. These factors have propelled the crypto lending sector as a viable alternative to banks and traditional loan services.
However, as noted by Christine Kim of Coindesk, the market currently has a high-interest rate variance for crypto deposits. The same applies to the wild varying borrowing rates offered on crypto loan platforms. Although this indicates market immaturity, it, nonetheless, provides users with competitive loan offers. As a result, the interest rate could drop to as low as 0%. In light of this, I carried out extensive research on the business models of top crypto lending platforms and how they affect the range of interest rates imposed on borrowers. In the end, I was able to come up with a ranked list of the most competitive crypto lending platforms.
*Platform utilizes floating interest rate systems
Of the 21 platforms ranked, just 5 are non-custodial or purely DeFI protocols. The rest require users to trust their assets with third parties and undergo KYC procedures before accessing loans. At the top of the ranking is Crypterium, thanks to its newly introduced crypto loan services with 0.0% APR. The second on the list is Celsius Network, with an impressive 1% as its lowest APR. From my analysis, it is clear that Torque is an outlier with interest rates as high as 60%. This exemplified the volatile interest rate variance synonymous with the crypto lending sector. Regardless of this, the average APR is 9.90%, which is not a deal-breaker.
Crypterium is a KPMG-awarded fintech company looking to optimize financial services by seamlessly introducing crypto infrastructures into everyday banking processes. Already, it has one of the most sophisticated crypto payment solutions in the landscape. The same is true of its crypto card and wallet services. Recently, it announced the introduction of its crypto loan services with 0% APR. This move fits into the startup’s goal of eliminating financial hurdles and providing its users with competitive rates. And so, users can collateralize Bitcoin or Ethereum to borrow up to 50% of the worth of their assets in USDT at no extra cost and without worrying about credit scores.
Even more remarkable is the fact that Crypterium’s loan service is insured to the tune of $100 million in custodial assets. Hence, risks are, to a large extent, non-existential. In a Forbes article, Steven Parker, CEO of Crypterium and former general manager of Visa’s Central & Eastern Europe network, stated that compliance helps the startup to collaborate with more established financial institutions and provide improved products. For now, the lowest you can borrow on the platform is $50, while the maximum is $5,000.
Launched in 2017, Celsius Network has emerged as one of the leading players in the crypto lending landscape. This is due to its competitive interest rates buoyed from the decision to distribute a large chunk of its revenue among users. Hence, its interest rates start at 1% APR, depending on the LTV and the duration of the loan. Celsius allows users to borrow 25%, 33%, or 50% of their collateral. Unlike Crypterium, it lists a wide variety of supported coins, including Bitcoin, Ethereum, Dash, Litecoin, XRP, Stellar, Omise Go, and Chainlink. The minimum loan accessible on Celsius Network is $1,000.
Nuo Network is a decentralized crypto lending protocol as it provides a loan system that does not require users to transfer the ownership of digital assets to the lender. In other words, it locks collateral in smart contracts and instantly sends funds to users without imposing KYC checks. According to the website, Nuo has serviced over $39 million worth of loans, and it offers some of the lowest interest rates in the market. You can access as low as 2.3% APR when borrowing USDC with any of the platform’s supported coins. However, as it is with every DeFI lending protocol in this study, the interest rates tend to fluctuate intermittently.
Other Notable Observations
The DeFi protocols on this list have mechanisms that automatically adjust the APR based on the demand and supply of loans or the price fluctuations of native tokens. The only exception is Aave, which, in addition to variable APRs, has fixed interest rates for supported digital assets. As for the custodial alternatives, the project teams alter the interest rates from time to time. The only difference is that these alterations are not as volatile as the DeFI counterparts.
From the data above, it is safe to say that the established crypto lending platforms like Nexo and Celsius Network can provide loan services to high net worth crypto holders. However, the maximum loan threshold of $2 million pales in comparison to what banks can offer.
It is important to note that the crypto lending market is nascent. Hence, it is only a matter of time before we begin to see a more cohesive landscape in terms of interest rates. Nonetheless, the standards set by the likes of Crypterium in this regard shows that collateralized digital assets make near-negligible interest rates a possibility.
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