The 8 Best Custodial & Non-Custodial Crypto Loan Platforms

Zac McClureUpdated at: Aug 21st, 2020

If you’re looking for a way to make your cryptocurrency investments work for you, you may want to consider crypto backed loans. You can lend out your crypto to earn interest income, or, if you’re an investor looking for an instant credit line, you can offer your crypto as collateral and take out a loan.

In this article, we’ll discuss why you may want to check out crypto lending and loans as well as present an overview of the best instant crypto backed loan platforms. 

Why borrow or lend crypto? Are there tax advantages?

Crypto loans offer major benefits to crypto holders that cryptocurrency exchanges cannot. While the passive income advantage of crypto lending is obvious, crypto loans can also let an investor add liquidity to their bank account without triggering a taxable event

If you need liquid funds and you have a crypto investment that you don’t want to sell, you can take out a loan to acquire funds while also keeping your investment intact. 

Recall that long term sales (assets sold after being held for a year or more) are taxed at a lower rate — this is one major reason that investors may want to not sell an investment, but rather borrow against it in order to get spending capital in the short term, thus keeping the holding period in tact and creating a game changer for cryptocurrency investors. 

What are crypto backed loan rates?

Interest rates differ across platforms, but in general, DeFi platforms offer a higher APR (9% and up) across the board. Custodial loan platforms typically offer an interest rate starting around 4%. Loan repayments also differ across platforms. 

Are crypto loans without collateral possible?

Yes, and it’s an active topic in crypto. You can receive an instant crypto loan without collateral on a number of platforms. Flash loans are an example of uncollateralized loans; however, they are very complicated and require a higher degree of crypto know-how.

What are DeFi loans (decentralized finance loans)?

DeFi is one of the fastest growing sectors in crypto collateral loans. At the time of writing, users have deposited over $900 million worth of crypto into these smart contracts. All you need to get started is a crypto wallet. 

  • DeFi loans aren’t managed by a business or its employees — instead, the rules are written in code, or “smart contracts”. Once the smart contracts are deployed by the dapp (decentralized application), they can run themselves while developers maintain them and fix bugs.

  • The code is open-source, so anyone can look at and audit the contract. 

  • Dapps are designed to be accessed globally, giving anyone with a smartphone the ability to take advantage of DeFi services.

  • DeFi platforms offer a unique permissionless participation. There are no middle men or lengthy forms to sign. Users interact directly with the smart contract from their own crypto wallets

What kind of DeFi loan platforms should you look into?

MakerDAO

Maker DAO is a decentralized autonomous organization within the Ethereum blockchain. Maker works to minimize the volatility of its stablecoin DAI with holders of MKR tokens governing DAI. With Maker, anyone can leverage their ethereum assets to generate DAI. 

Compound Finance

Compound is a blockchain-based borrowing and lending dapp. Crypto lenders can lend their tokens to earn interest or deposit crypto to the Compound smart contract as collateral to borrow against it. Compound is a permissionless lending and borrowing platform built on the Ethereum network. 

The protocol uses smart contracts to track ownership and interests across different lending pools. They offer a few Ethereum based stable coins (DAI and USDC) that are prioritized over other currencies when accepting loan amounts and payback currency.

dYdX

dYdX uniquely offers an entire decentralized trading interface as well centralized lending and borrowing. Loans are capped at a maximum of 28 days and interest rates are floating, meaning they are adjusted regularly based on supply and demand.

Aave

Another open source non custodial platform, Aave offers a unique service in the way of flash loans and flexible rates. They require a loan to be taken out and put back in the same transaction, allowing access to crypto without collateral — but in a very complicated way. This type of loan offers a wealth of interesting investment opportunities if you’re clever enough to understand how the work.

What are the best custodial crypto loan companies?

While DeFi loans have their advantages, custodial loan platforms may offer more in terms of security than DeFi platforms. Custodial platforms also tend to offer lower crypto loan rates. Furthermore, DeFi is still a developing (thus risky) field. Many users were surprised by the two DeFi flash loan attacks that resulted in over $500,000 in ETH stolen

BlockFi

BlockFi is a New Jersey based crypto asset management company. They service customers worldwide, including 47 U.S. states, with interest earning accounts and low cost USD loans backed by crypto. To get a loan, you can put up bitcoin, litecoin, or ethereum as collateral. 

The company currently offers up to a 50% loan to value (LTV) ratio on your crypto. This means to get a $10,000 worth of loaned assets, you need to put down $20,000 worth in collateral.

Celcius

Celsius, founded in 2017, is a crypto credit line platform. Their platform functions as a mobile app that allows users to earn interest on stablecoins and a number of cryptocurrencies. Their borrowing interest rates start at 4.95% per year with a minimum loan of $1500. 

Nexo

Nexo is an instant crypto loan platform claiming military level security (256-bit encryption). Users transfer their assets into a secure Nexo wallet, and from there, those assets come under the protection of the BitGo repository. After the collateral is confirmed, your Nexo account evaluates the collateral and then calculates a suitable loan-to-value ratio. After the LTV is calculated, users will be able take out instant crypto loans in the form of fiat or stablecoin.

Crypto.com

Crypto.com offers a service called Crypto Earn, where users can deposit their tokens and earn interest on their investments by up to 8%. Crypto.com offers both online and mobile applications that easily help you move tokens between your wallets and Crypto Earn. They are also the stakeholder of their own digital currency MCO; this comes with the benefit of lower interest rates by up to 2% and bonuses when exchanging your tokens for MCO.

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