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How Cryptocurrency Lending Works and What is it?

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As with any type of investment, investing your hard-earned money in cryptocurrencies should not be an easy decision. The wildlife of the crypto market can play both ways, doubling your initial investment in a few months, or leaving you with heavy losses over the years. However, timing is an important factor in your investment approach.

After the market crash in 2018, many crypto investors found themselves in a dilemma: cash out their wealth and make big losses or rush until prices rise again. From this dilemma, cryptocurrency lending platforms have emerged that offer investors an alternative to using their cryptocurrency assets as collateral for loans.

What is a cryptocurrency loan?

Cryptocurrency lending refers to the process of borrowing fiat money or digital assets that are stable for a certain period of time and an interest rate. The lending process usually involves two or three parties: the borrower, the lender, and the platform that connects the two parties to the transaction. However, there are certain platforms that act as creditors themselves.

Investors turn to this platform to borrow money using their assets as collateral. Depending on the platform, the lender can set certain parameters that the borrower should consider, such as the term of the loan, the interest rate, and the minimum amount required.

How does a loan in cryptocurrency work?

While every platform on the market has a slightly different loan process, getting a cryptocurrency loan usually involves the following five steps:

  1. The borrower registers on the platform and indicates the required amount
  2. Crypto lending platform automatically calculates how much crypto is needed as collateral
  3. The borrower deposits collateral on the platform
  4. Borrowers apply for loans and wait for approval
  5. The platform will deposit funds into the borrower’s account after approval
  6. Advantages and disadvantages of crypto credit services
  7. The crypto lending business is definitely an attractive alternative for many. However, we strongly encourage you to look at both sides of the picture before making a decision.

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