Crypto financing became familiar to those who are involve in crypto market investment as a long term investor. Crypto lending and borrowing have gained momentum recently, that set up a beginning of a new financial era.
Crypto Currencies remain volatile from the beginning of the year 2022. Last January 2021 Bitcoin touched $40,000 mark and surpasses all time high at $64,000 on April 2021. Since July 2021 it fallen and again traded at $46,000 in September 2021. After that it continue to a bearish trend and June 2022 it traded bellow $20,000 mark. After mid July 2022 it regain $20,000 mark and finally stable for some times. Now on August first half it continues trading around $23,000 to $24,800 level.
Short term traders who enter at the lower level are in good profit. Long term traders may not be in profit but have an opportunity to average their portfolio on lower rate.
How Crypto Finance Offers Lending and Borrowing
Crypto long term investor hold their cryptos in safe wallet and also can spend the amount in regular currency like INR, USD, CAD, EUR with the help of Crypto Finance. Long term Crypto investors can hold their Cryptos or Bitcoin in a safe wallet until it gain profit and till then he can keep it as collateral with Crypto finance company to get interest or dividend.
Investors who opt for HODL (Hold for dear life), can lending their assets and earn interest, which is also called “dividend” in crypto language. In that way investors can earn passive income and stay remain the owner of the crypto assets.
Another way to use your crypto asset as collateral is borrowing. Investors can borrow cash or bitcoin against their collateral asset. Borrowing loan from finance company or lending company is same as mortgage loan. As we can take loans from banks against our assets like cars or house or properties. Similarly crypto assets borrow loans as collateral or mortgage with finance companies.
Investors remains the owner of that collateral crypto assets but can not trading with it on the lending or borrowing tenor. They can fully activate it when borrowing amount has fully paid and lending tenor has completed.
How Does Crypto Lending Works in Crypto Financing
Crypto lending support investors not losing their money. Crypto Financing Company ask loan for 25% to 50% stake of your crypto asset which can usually recover most of the losses and avoid investors loosing money.
Suppose you have 8 Bitcoin and want to get some passive income. You can deposit your 8 Bitcoin to a landing platform wallet or Crypto Exchange to earn interest monthly or weekly from it. The lending of Bitcoin offers 3% to 7%. But interest could be higher if your asset is a stable asset like USD coin, Binance USD then you can get as high as 17% from it.
Investors deposit their cryptos as collateral to the company. Non payment of loan company can sell those crypto assets to recover losses.
How Does Crypto Borrowing Works In Crypto Financing
Crypto financing allows to borrow in cash like INR, USD, CAD and EUR with keeping crypto assets as collateral. It can be understood with an example. Suppose you have 1 Bitcoin worth $24,000. You need $10,000 for an emergency. You propose to a crypto exchange for borrowing $10,000 at the interest rate 8% per annum. Exchange contact Mr. A who is ready to lend his USD 10,000 at the rate of interest 8% with keeping as collateral 1 Bitcoin from you. So the deal done.
If you not able to repay USD 10,000 with interest to Mr. A , he can sell your 1 Bitcoin to cover his losses and pay you the rest amount. Collateral value is always much higher than loan amount, which is more secured in the case of Crypto Financing lending.
So this is the way how crypto financing work on Lending and borrowing.
- Borrower deposit his collateral for loan to an crypto exchange or lending platform.
- Lending platform approve loan with interest and collateral for a tenor.
- Lender accept collateral against his stable asset for earning interest.
- Borrower has to pay full amount of loan with interest within tenor to get back his asset’s stake.
Long term investors can get a passive income through lending his crypto asset till the price of the cryptos rise and he get higher profit on it also. So crypto financing help investors to get more profit from their investment.