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Yo, what’s up people!? I hope you’re having a spectacular day wherever you are. I have yet another tutorial, kind of, I’d like to share. We’ll be talking about crypto loans, secured crypto loans to be specific.
Now what are secured loans?
A secured loan is one that is collateralized—or secured—by a valuable asset, in this case it’s crypto. The loan is secured by the underlying asset being financed like Bitcoin, Ether or USDC.
So I put crypto as a collateral and I’ll be able to borrow against the $ value of my asset(s)? Yes, my friend! There are wallets like Celsius and BlockFi who offer these lending services and there are decentralized protocols like Aave. I’ve covered all of them in previous posts, but I was focused on earning yield on your assets not the borrowing side of things. The choice is up to you if you want to go with borrowing from a custodial service like Celsius or from a non-custodial service like Aave.
Custodial vs Non-Custodial
|Fixed rate||Fixed & Variable rate|
|Locked collateral||Free to withdraw and deposit at any time|
|Loan needs approval, might take days||Instant approval and access to capital|
|Get notified when the liquidation price is too close||Instant liquidation|
|Single asset collateral||Multi asset collateral|
|Can only borrow single asset||Can borrow multiple assets at once|
As you can tell from the comparison, they both have their own pros and cons. It’s up to you who you want to work with. A protocol that does everything automatically or a company/person who has control over your loan.
These are my loans I’ve taken with Celsius and I’m quite happy about it. No issues, my loan got approved in a couple of hours and I paid it off completely. I will say that Celsius is very easy to understand, no complexity within the app and no confusion. You can always contact the team if you have any questions about the loan. My annual interest rate was 1%.
In this section I’ll show you how you can apply for a loan in Celsius.
Go to the floating menu, press it and choose the “Borrow $” option.
Insert how much and which asset you want to borrow. Minimum is 500
Choose your interest rate
Choose the term of the loan
Now it’s time to review your loan, in this example I’ve chosen ETH as my collateral, 1% APR and a 12 month period so my Margin Call is at $799.25 and my Liquidation price is at $649.39.
Margin Call = Celsius notifying you that you might want to deposit more collateral
Liquidation = Celsius taking your collateral and closing your loan
This is Aave, as you can see this has quite a learning curve but the UI is getting better each passing day. I can borrow and also deposit more than one type of asset. The interest rate changes based on the market demand, USDC has a very high borrow demand right now.
Taking a loan in AAVE is very straightforward. They show you how much and which asset you can borrow.
AAVE works with a health factor. I’d advise you to keep it above 3 to sleep better at night.
Let’s say that I want to borrow $1000 in USDC, I can see my health factor slide to the yellow-orange side. My rule is to keep it above 3 so I’m still safe. I click continue, approve the transaction and I’m done. No waiting period, no term period, straight up instant access to capital.
Crypto loans are very exciting, but it’s also risky. You need to play your cards right or else you might get rekt. Again, no risk = no reward, so manage your risk and don’t over leverage yourself. Keep your loan healthy by keeping a close eye on the liquidation price.
You can do so much with crypto loans such as
- Leverage yourself by depositing Ether as collateral to borrow DAI to buy more Ether or you can finance another investment.
- Finance a car, home or when you’re really in a pickle
I hope you enjoyed reading this post. How would you use crypto loans? Let me know!
Stay AbNormal, see you soon!