You’ve Seen the ‘Crypto Lending’ Trend, Right? If Not, Here Are 12 Real-life Examples for You

Amanda Thibeault November 18, 2023
You’ve Seen the ‘Crypto Lending’ Trend, Right? If Not, Here Are 12 Real-life Examples for You

Lending and borrowing are integral parts of any financial ecosystem. As blockchain technology continues to disrupt traditional financial systems, it’s no surprise that a new form of lending – crypto lending – is on the rise. 

This article will delve into the world of crypto lending, offering insights into what it is, along with some real-life examples.

What is crypto lending?

Crypto Lending

Crypto lending, a significant subset of decentralized finance (DeFi), involves lending cryptocurrency or fiat currency to borrowers in exchange for interest payments. The process typically requires borrowers to deposit collateral in cryptocurrency, ranging between 100% to 150% of the loan amount. 

The emergence of crypto lending platforms has made it possible for users to earn interest on their crypto holdings, similar to how traditional bank savings accounts operate.

Top 12 examples of the crypto lending trend

Take a look at the best 12 examples of the crypto lending trend that have taken the world by storm:

1. Real estate crowdfunding platforms

The rise of real estate crowdfunding platforms marks a significant shift in how individuals invest in properties. These platforms have started accepting cryptocurrencies as collateral for loans.

An exemplary platform, RealT, enables users to participate in fractional ownership of real estate using cryptocurrencies, revolutionizing the real estate investment landscape.

2. Crypto-backed mortgages

The concept of crypto-backed mortgages is gaining traction as cryptocurrency holders seek to leverage their digital assets for real-world investments. Companies like Milo are at the forefront of offering mortgages to borrowers who can provide a down payment in cryptocurrency. This innovative approach not only facilitates home ownership but also blurs the lines between the traditional real estate market and the burgeoning crypto sphere.

3. Institutionalization

Institutional investors are increasingly drawn to crypto lending as a strategic means to gain exposure to the cryptocurrency market without direct cryptocurrency ownership. This heightened institutional interest is driving the development of tailored lending products and services that cater specifically to the needs and preferences of institutional players, contributing to the maturation of the crypto lending sector.

4. Over-collateralization

Over-collateralization remains a fundamental practice within the crypto lending ecosystem. It serves as a risk mitigation strategy wherein borrowers are required to provide collateral exceeding the loan amount. 

This ensures that lenders can liquidate the collateral assets in the event that their value falls below a predetermined threshold, safeguarding lender interests and the overall stability of the lending platform.

5. Flash loans

Flash loans represent a groundbreaking development in crypto lending, characterized by their ability to facilitate instantaneous borrowing and repayment of substantial cryptocurrency amounts within a single blockchain transaction. Frequently utilized for arbitrage opportunities or leveraged trading strategies, flash loans underscore the fast-paced and dynamic nature of the crypto market.

Crypto Lending

6. Non-fungible tokens (NFTs) as collateral

NFTs have garnered significant attention not only as unique digital assets but also as potential collateral for loans. This emerging trend recognizes the intrinsic value of NFTs and their ability to serve as collateral in the crypto lending ecosystem. As NFT adoption continues to expand, this trend is poised to reshape the lending landscape by introducing a new class of collateral assets.

7. Crypto lending for gaming finance

Gaming enthusiasts are increasingly turning to crypto lending platforms like GameFi to enhance their gaming experiences. These platforms allow gamers to utilize their cryptocurrency holdings as collateral to secure loans. 

These loans serve as a means to unlock new opportunities within the gaming ecosystem, from acquiring rare in-game items to investing in virtual real estate or participating in Play-to-Earn (P2E) games. By leveraging cryptocurrency-backed loans, GameFi platforms bridge the gap between the crypto and gaming worlds, providing gamers with financial flexibility and liquidity to make the most of their gaming pursuits. 

Moreover, such platforms often incorporate risk mitigation measures, such as collateral requirements, to ensure the security and sustainability of gaming finance in the crypto space.

8. Embedded lending

Embedded lending is transforming the accessibility of crypto lending by seamlessly integrating lending platforms into various financial applications. This integration eliminates the need for users to navigate separate lending platforms. Furthermore, this simplifies the borrowing process and expands the reach of crypto lending across different financial services.

9. Social lending

Social lending, a nascent concept, has the potential to revolutionize borrowing and lending by leveraging social media platforms. While still in its early stages, this trend envisions the facilitation of peer-to-peer lending within the context of a user’s social network, potentially democratizing access to capital and fostering trust-based lending relationships.

10. Microlending

Microlending continues to empower individuals and small businesses by offering small, tailored loans to meet specific needs. This lending model plays a crucial role in supporting entrepreneurs and small enterprises, facilitating economic growth, and enabling financial inclusion on a broader scale.

11. Crypto lending for margin trading

Crypto lending plays a pivotal role in enabling margin trading. This is a strategy embraced by many cryptocurrency investors to magnify their trading positions. On prominent exchanges like Binance, traders can access borrowed cryptocurrency assets to leverage their trading endeavors. 

Leverage allows traders to control larger positions than their initial capital would permit, potentially amplifying their gains. However, this strategy comes with inherent risks, as it can lead to substantial losses if market movements go against traders’ positions. 

To facilitate margin trading, crypto lending platforms ensure the availability of borrowed assets, empowering traders to seize market opportunities quickly. Nonetheless, traders must be mindful of interest payments and fees associated with borrowing. Moreover, these factors can influence the overall profitability of margin trading activities.

12. Yield farming

Yield farming, popular among experienced crypto investors, involves skillfully navigating various DeFi protocols to generate high returns on cryptocurrency investments. While it offers the promise of lucrative opportunities, it also comes with inherent risks that investors must carefully consider. Yield farming represents a dynamic aspect of crypto lending, where strategies continually evolve to optimize returns within the DeFi ecosystem.

The future of crypto lending

Technological advancements are pushing the crypto lending sector forward. The shift from proof-of-work (PoW) to proof-of-stake (PoS) for some cryptos has given birth to liquid staking tokens (LST). This is certainly a new trend in crypto lending. 

Ethereum’s move to PoS has led to the rise of LSTs. Additionally, this can be used for trading and lending, further diversifying the crypto lending space. Furthermore, the emergence of NFT lending has added another layer of complexity and potential to the crypto lending landscape. 

Crypto Lending

Summing up

Crypto lending is undoubtedly a game-changer in the world of finance. They provide higher interest rates, faster loan approvals, and more accessibility. However, the inherent volatility of cryptocurrencies, lack of regulation, and security concerns make it a high-risk endeavor. 

As such, both borrowers and lenders should tread with caution and conduct thorough research before diving into the world of crypto lending.

Amanda Thibeault