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Photography uses cryptocurrency lending, where users can borrow or lend cryptocurrency for a fee to earn interest. Just provide the corresponding collateral to obtain the loan and start investing. Borrowing can be done through decentralized finance (DeFi) lending DApps or cryptocurrency trading platforms. If the collateral is below a certain value and the user recharges to the desired value level, it can avoid forced liquidation. After repaying the loan and fees, the funds can be unlocked. In addition, users can obtain unsecured “flash loans”, but they must repay them all at once. If unable to do so, the loan transaction will be cancelled before final finalization. Cryptocurrency lending makes borrowing and lending more convenient, and the entire process is automated by smart contracts. For many people, this allows them to easily earn annual returns (APY) or obtain low interest credit by holding cryptocurrency assets for the long term. However, unlike all projects, smart contracts, or investments in the blockchain, cryptocurrency lending also involves financial risks. For example, if highly volatile tokens are used as collateral, they may face forced liquidation overnight. Smart contracts can also be hacked, maliciously attacked, or exploited, often resulting in significant losses. Before borrowing, users need to understand that they will lose their token custody rights during the borrowing period. Tokens are out of personal control and asset liquidity will decrease. Please pay attention to all the terms and conditions of the loan, understand when the funds will be unlocked and available, and whether there are any fees involved. Go to the pledging and borrowing page immediately, and you can start borrowing from your personal Binance account.
Lead
When we think of cryptocurrency gains and losses, we immediately think of volatile prices and a hot market environment. But that’s not the only way to make money in the blockchain. Crypto lending services are at your fingertips, allowing users to lend their funds with a lower risk. On the other hand, digital assets can be borrowed quickly and at low interest rates. Crypto loans are generally more straightforward, efficient, and inexpensive to borrow and disburse, making them an option worth exploring for both borrowers and borrowers.
What is cryptocurrency lending?
Cryptocurrency lending works by a user coming up with their ownCryptocurrency, to another user, for a fee. The exact way to manage your loan varies from platform to platform. Users can find crypto lending services on both centralized and decentralized platforms, and the core principles of both remain the same.
Users don’t have to be borrowers, they can also lock their cryptocurrencies in a pool, which manages the funds to earn passive income and interest. Choose a high level of reliabilitySmart contractsUsually the risk of loss of personal funds is minimal. This is mainly because borrowers provide collateral or leave loans managed by centralized finance (CeFi) platforms such as Binance.
How does crypto lending or staking work?
Cryptocurrency lending generally involves three parties: the lender, the borrower, and a decentralized finance (DeFi) platform or cryptocurrency trading platform. In most cases, the lender will have to provide the appropriate amount before borrowing the cryptocurrencysecurity。 Alternatively, use a flash loan that requires no collateral (more on this below). The lender can choose to mintStable coinssmart contracts, or other platforms where users lend funds. The lender adds the crypto to the pool, then manages the entire process and switches a portion of the interest.
Types of cryptocurrency loans (pledged loans)
Flash loans
Flash loansFunds can be lent without collateral. The origin of the name is due to the fact that the acquisition and repayment of the loan all take place in the same placeBlockWithin. If the loan amount and interest cannot be repaid, the transaction will be cancelled before the block is validated. This means that the loan never actually happened because it was unconfirmed and not added on-chain. Smart contracts control the whole process without human interaction.
To use a flash loan, you need to act quickly. This is where smart contracts come into play again. Using smart contract logic, users can create top-level transactions with sub-transactions. If the sub-transaction fails, the top-level transaction will not go through.
Let’s look at an example. hypothesisLiquidity poolsA token worth $1.00 can be sold for $1.10 in liquidity pool B, but the user does not have the funds to buy the tokens in the first pool and then sell them to the second pool. Then, if the user tries to use the flash loan, he will have a chance to achieve this time in one blockArbitrage trading。 For example, let’s say we first get a flash loan of 1,000 BUSD from a DeFi platform and repay it later through the platform. We can break down this loan into smaller sub-transactions:
1.Transfer the borrowed funds to your personal wallet.
2.Buy $1,000 of cryptocurrency, i.e. 1,000 tokens, from Liquidity Pool A.
3.Sell 1,000 tokens at a price of $1.10 to get $1,100.
4.Transfer the fees incurred by the loan and borrowing to the flash loan smart contract.
If any of the above sub-transactions cannot be executed, the lender will cancel the loan before the loan takes place. In this way, users can profit from flash loans without any risk to the individual or collateral. Flash loans offer great opportunities including collateral swaps and price arbitrage. However, flash loan funds can only be used on-chain, and transferring funds to other chains violates the single transaction rule.
Collateral loans
Since the borrower provides the collateral, the time frame for using the mortgage funds can be longer.MakerDAOAn example of this is where users can get loans by offering a variety of cryptocurrencies. Due to the high volatility of cryptocurrencies, the loan-to-value (LTV) ratio will be low, such as about 50%. This value means that the loan is only half the value of the collateral. If the value of the collateral falls, this difference provides room for its value to change. If the collateral falls below the loan value or other given value, the funds will be sold or transferred to the lender.
For example, for a $10,000 BUSD loan with a loan-to-value (LTV) ratio of 50%, users would need to deposit $20,000 worth of Ether (ETH) as collateral. If the token value drops below $20,000, users will need to add more funds. If it falls below $12,000, the user faces:Forced liquidation, and the lender will recover the funds.
The loan received by the borrower is usually a newly minted stablecoin, such as DAI, or a cryptocurrency lent by someone else. The lender deposits the asset into the smart contract, which locks the funds for a specific period of time. Once the borrower gets the funds, they can do whatever they want. However, the borrower needs to top up according to the spread of the collateral to ensure that the position is not liquidated.
If the loan-to-value (LTV) ratio is too high, you may face penalties. Smart contracts manage the entire process, ensuring its transparency and efficiency. After the loan and interest are paid off, the collateral is returned to the original owner.
Advantages and disadvantages of cryptocurrency loans (pledged loans)
Cryptocurrency lending has been a common means in the decentralized finance (DeFi) space for many years. Despite being popular with users, there are some drawbacks. Before you decide to try borrowing, be sure to weigh the pros and cons:
merit
1.Easy access to funding. Anyone can get a crypto loan as long as they provide collateral or get the money back through a flash loan. Loans of this nature are easier to obtain than loans from traditional financial institutions and do not require credit checks.
2.Smart contracts manage loans. Smart contracts are automatically managed throughout the process, making lending more efficient and scalable.
3.It’s easy to earn passive income.HolderInvest your crypto in a yield pool to start earning an annual percentage yield (APY) without having to manage your loans yourself.
shortcoming
1.The collateral is subject to a high risk of forced liquidation. Even if the value of the loan collateral is exceeded, any sudden drop in the price of the cryptocurrency will result in a forced liquidation.
2.Smart contracts are vulnerable. Poorly written code and backdoor attacks can result in the loss of loan funds or collateral.
3.Borrowing increases individualsPortfoliorisk. Diversifying your portfolio is a good idea, but using a loan operation adds additional risk.
Things to keep in mind before choosing a cryptocurrency loan (pledged loan)
Using a trustworthy lending platform and choosing stable assets as collateral will allow you to secure a crypto loan without any problems. Before you make a hasty decision to borrow, consider the following:
1.Understand the risks of handing over personal cryptocurrency custody. Once the tokens leave the personal wallet, they must be trusted to be processed by someone else or a smart contract. These projects can be targeted by hackers and scams. In some cases, individual tokens may not be available for immediate withdrawal.
2.Carefully consider market conditions before lending cryptocurrency. Tokens are locked for a certain period of time, making it impossible to react in a timely manner to a downturn in the cryptocurrency market. There are also risks associated with borrowing through new platforms. It’s best to wait for the platform to build enough trust before taking action.
3.Read the terms and conditions of the loan. There are many ways to get a loan, and users should choose better interest rates and more favorable terms and conditions.
summary
When operated responsibly, crypto lending platforms have value for both borrowers and lenders. Holders now have another option to earn passive income, and investors can unlock the potential of their funds by using them as collateral. Whether you choose a DeFi or CeFi project management loan, you should understand the conditions and make sure you prioritize a trustworthy platform. Blockchain technology has made it easier than ever for users interested in credit supply and demand, and cryptocurrency loans have become a powerful tool for them.