9 Best Crypto Loan Providers 2024 (Expert Verified)
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Want to get started with a cryptocurrency loan? In this blog, we’ll walk through 10 of the best crypto loan platforms in 2024 — as well as the pros and cons of each option!
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How do crypto loans work?
Crypto loans allow users to borrow fiat currency or other cryptocurrencies using their crypto holdings as collateral. The borrower agrees to pay back the loan with interest over a specified period, and once repaid, they regain access to their collateral.
However, if the value of your collateral falls under a certain loan-to-value ratio, it’s possible that your collateral will be liquidated.
Crypto loans offer advantages over traditional loans — most loan providers do not require a credit check. However, cryptocurrency’s volatility means there is greater risk of liquidation during a market downturn.
“The #1 thing people need to understand about DeFi loan platforms is the risk of a market downturn. It’s possible you could go to sleep, then the next thing you know your crypto is down 20% and you risk liquidation. That makes it important to actively manage your position and make sure you don’t risk large dollar amounts.” - Jordan Bass, Taxing Cryptocurrency
Types of crypto loans
There are two types of cryptocurrency loans: CeFi and DeFi.
- CeFi: Loans from centralized platforms like Binance.
- DeFi: Loans from decentralized protocols like Aave.
What is a CeFi loan?
In a CeFi loan, a centralized platform takes control of your collateral. This means that the lender holds the private keys to your crypto-assets.
Centralized platforms do offer some advantages. Centralized platforms offer easy-to-use interfaces and customer support — which may make them a better option for beginner investors. However, users should be cognizant of the risks associated with centralized lenders.
In recent years, centralized lenders have faced criticism for mismanaging customer funds. 2022 saw multiple cryptocurrency lenders go bankrupt — including BlockFi, Voyager, and Celsius.
Because so many centralized lenders have faced financial issues, most popular centralized lending platforms today — like Unchained — are directed towards high net-worth individuals.
What is a DeFi loan?
Decentralized protocols don’t require third-party platforms taking custody of your funds. dApps (decentralized applications) use smart contracts — allowing you to receive a loan from other users without the need for a middleman.
DeFi protocols don’t have the option to give users fiat currency. Instead, loans are paid out in stablecoin.
DeFi protocols are a great option for users who are wary of centralized platforms and who are looking for transparent lending options.
What’s the point of a crypto loan?
Let’s walk through a couple of popular reasons for taking out a crypto loan:
Tax avoidance: Because borrowing against your crypto as collateral isn’t a true disposal of your tokens, it also doesn’t trigger a capital gains tax event. This means that you can gain access to liquidity without selling your cryptocurrency.
Trading leverage: If you are bullish on the long term prospects of Bitcoin, you could take out a loan against your existing crypto holdings and then use the loan proceeds to buy more crypto. This “leverages up” your exposure to cryptocurrency (but also increases risk!)
What are the risks of crypto loans?
Before you take out a crypto loan, it’s important to understand the potential risks.
- Volatility: The volatile nature of cryptocurrencies means collateral can quickly decrease in value, leading to potential liquidation.
- Smart Contract Vulnerabilities: DeFi protocols rely on smart contracts, which, if not coded correctly, can be exploited.
- Platform Risks: Centralized platforms can face issues like hacks, mismanagement, or regulatory challenges. In recent years, crypto loan providers like BlockFi have gone bankrupt.
- No FDIC Protection: Unlike US dollars, cryptocurrency is not protected by the FDIC. In the case of an exchange bankruptcy, you may lose access to your cryptocurrency.
Are crypto loans worth it?
Cryptocurrency loans can be worth it — but it’s important to be aware of the risk of liquidation.
Because your collateral can be liquidated, you should never deposit more than you can afford to lose and actively manage your position to avoid following below minimum requirements.
Crypto loans without collateral
There are a few options for borrowing crypto loans without collateral.
What are flash loans?
Flash loans allow users to borrow cryptocurrency without collateral. Flash loans allow users to borrow cryptocurrency, make a profit on a transaction, and pay back the loan instantly. If you cannot pay back the loan instantly, the loan will not be approved.
Flash loans typically require advanced coding and smart contract knowledge and are typically recommended for experienced investors only.
What are other ways to get non-collateralized loans?
While providers like Atlendis allow users to borrow loans without collateral, these are typically available for institutional investors only.
How to choose a crypto loan provider
How are crypto loans taxed?
Generally, taking out a loan is not considered a taxable event. However, some transactions may come with tax implications.
Taking out a DeFi loan: Some DeFi protocols require users to trade one cryptocurrency for another to take out a loan. For example, taking out a loan on Ethereum or Compound requires you to exchange ETH for cETH. Though the IRS has not yet provided guidance on these transactions, it’s possible that this will be considered a crypto-to-crypto trade subject to capital gains tax.
Forced liquidation: If your collateral is liquidated, you’ll incur a capital gain or loss depending on how the price of your collateral has changed since you originally received it. This is true even if you do not receive the proceeds of the liquidation.
Crypto interest deduction: If you use your loan for business or investment purposes, you may be able to deduct your interest fees on your taxes. This deduction is not available if you used the loan for personal purchases.
For more information, check out our guide to cryptocurrency loan taxes.
Crypto loan alternatives
Not comfortable using your cryptocurrency as collateral? Here are some alternatives you can consider if you’re in need of a loan.
Conventional loan: If you’re looking for a conventional loan, you can receive one from a bank or credit union. Typically, getting approved for a conventional loan is a lengthy process that involves a credit check. However, conventional loans do offer some benefits — such as FDIC protection for your collateral.
Home equity loan: A home equity loan allows you to receive a loan using your home as collateral. However, if you default on your home equity loan, the lender can foreclose on your home.
Small personal loans: In need of a small loan? Apps like CashApp allow you to borrow between $20-200!
Frequently asked questions
- Can I get a loan for crypto?
- How do I get a crypto loan?
- Is it smart to get a loan for crypto?
- Can I borrow crypto without collateral?
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