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10 Best Crypto Loans & Crypto Lending Platforms (2023 Expert-Reviewed)
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Our experts have picked the top ten crypto loan services for 2023, including Aave, Compound, and YouHodler.
Crypto loans typically do not cause any taxable events. However, there are several loan-related events that would be taxable if they occurred, most notably forced liquidations.
Our picks: What is the best crypto lending platform in 2023?
Crypto lending platforms allow individuals and traders to access liquid funds without selling their digital assets. Here are our top five crypto lending platforms on the market today, carefully selected by our team of experts to help you access the best crypto loans available, followed by comprehensive reviews of these and other top crypto lending platforms.
Methodology
How our crypto tax professionals selected the best crypto lending platforms
How to choose a crypto lending platform?
The best crypto loans for your purpose will depend on a number of factors, including the type of crypto you intend to borrow against, your region, and your risk profile.
Some key factors to consider when considering a crypto lending provider and seeking the best crypto loans include:
Security: is the crypto lending platform secure? Does the crypto loan platform have a history of security breaches or hacks?
Reputation: does the platform have high-quality user reviews and testimonials, and what is its reputation in the crypto community?
Interest Rates & Terms: different crypto lending platforms will offer different rates and terms, and you’ll want to understand these before proceeding with any crypto loans.
Supported Cryptocurrency: which cryptocurrencies does the crypto lending platform support and will you be able to get a crypto loan with your preferred currencies?
Customer Support: what customer support does the crypto lending platform provide, and are you confident you’ll be able to get any assistance you might need?
Compare the best crypto loans & crypto lending platforms in 2023
Here are expert picks of the crypto loan companies that will help you access the best crypto lending options available in 2023.
Aave
Best for flash loans
Aave is a leading crypto lending platform that allows you to take loans by providing cryptocurrency as collateral or through flash loans without collateral, for arbitrage. Because the LTV rates are high, you can enjoy very low interest rates.
Alchemix
Self-repaying loans through smart contracts
Alchemix offers self-repaying loans through smart contracts, which means borrowers don’t need to worry about manual payments or worry about unanticipated liquidations.
Bake
A one-stop DeFi shop with crypto lending at a low APR
Bake is a reputable, Singapore-based platform that provides a wide range of decentralized financial services, including crypto loans. They offer an Annual Percentage Rate (APR) starting from 0.5% and allow users to borrow DUSD with a variety of options for collateral.
CoinRabbit
Quick access to funds
CoinRabbit offers crypto loans without KYC or credit checks, providing quick access to funds. Users can utilize over 130 different types of collateral and borrow cryptocurrencies such as USDT, USDC, BUSD, BTC, ETH, DOGE, or DGB, with a minimum loan amount of $100.
Compound
Lending platform with bonus rewards
Compound was one of the first platforms to offer decentralized lending and has played a significant role in shaping the DeFi market. They require borrowers to provide more collateral than the loan amount, ensuring low APRs, and offer numerous options for collateral assets, including ETH, WBTC, COMP, UNI, or LINK.
Crypto.com
Established and credible centralized platform
Crypto.com offers loans through which you can borrow up to 50% of the value of your cryptocurrency. They also provide a credit calculator tool so you can customize the terms of your loan. Lower interest rates are available when you stake with their native Crypto.com Coin (CRO), and users can use over 20 cryptocurrencies as collateral.
Summer.fi
Reliable DeFi platform with support from the Maker Foundation
Summer.fi (previously Oasis.app) began as a part of the Maker Foundation, which oversees MakerDAO, Maker Protocol, and DAI. It has developed a reputation as a reliable DeFi platform that provides DAI loans. The platform allows you to deposit collateral including ETH, wBTC, stETH, UNI, LINK, and more.
Unchained Capital
Best for Bitcoin-backed crypto loans
Unchained Capital is a crypto lending company that offers financial services related to Bitcoin. They offer various services such as Bitcoin saving vaults and IRAs for investors, as well as loans that are backed by Bitcoin. Unchained Capital follows a policy of not rehypothecating client assets, which means they never lend out the assets held by their clients.
Uniswap Flash Swaps
Uncollateralized loans for arbitrage
For more technically savvy traders, Uniswap Flash Swaps provides uncollateralized loans suited for arbitrage traders, automated by smart contracts. Technical knowledge is required, and it may not be suitable for those new to DeFi.
YouHodler
Good for crypto loans with high LTV ratios
YouHodler is a crypto lending platform tailored to investors who want to borrow crypto fast. They offer a variety of options for collateral and provide a high loan-to-value (LTV) ratio of up to 90% for a duration of up to one year. With over 40 cryptocurrencies to choose from as collateral for crypto-backed loans, borrowers can access funds up to 90% of the collateral's value.
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What is a crypto loan?
A crypto backed loan is a way for traders to receive liquid funds without selling their cryptocurrency. Instead, they use their digital assets as collateral for a cash or stablecoin loan.
Individuals may choose to take out a crypto loan instead of selling because they expect their crypto asset’s value to increase or because they want to hold the asset long enough to avoid short-term capital gains crypto tax rates.
How to get a crypto loan
Crypto loans are available through a crypto lending platform, as described above. Essentially, a crypto loan allows you to borrow against crypto. To get a crypto asset loan, you’ll need to own one of the cryptocurrencies accepted by the crypto lending platform you select. So first, check with the crypto lending platform regarding which coins they’ll accept, as that’s an essential part of finding the best crypto loans for your purposes.
Each crypto lending platform will have a unique application process, so it’s important to do your research before applying to make sure you’ll qualify in your region. Like any loan, the fine print matters, so take the time to read the terms and conditions.
Once you’re confident you’ve chosen the right crypto lending platform, start an account and begin the application process. You’ll need to verify your crypto holdings and your identity. From here you’ll choose the type of crypto loan you want and the loan-to-value (LTV) you’re interested in, as well as payment terms.
Is crypto lending a good idea?
There are a number of benefits to crypto lending, including:
Low interest rates, often below 10%
Typically, no credit check
Fast funding, even within hours
Crypto loans, when properly handled, can be a quick and safe way for crypto holders to access additional funds by borrowing against their existing crypto holdings.
Crypto-backed loans give crypto holders access to capital without having to sell their crypto, which can be advantageous for tax and other purposes when used responsibly as part of a broader crypto strategy.
What are the categories of crypto loans?
There are two principal categories of crypto loans: custodial (CeFi) and non-custodial (DeFi).
With CeFi loans, a central entity holds the collateral and controls the assets' private keys, restricting the trader's access to their assets.
DeFi loans use smart contracts to enforce loan terms, allowing users to retain control of their assets unless they default on the loan.
Custodial crypto (CeFi) loans
CeFi loans are custodial, which is to say, a central entity takes custody of collateral. In this situation, a trader cannot access his or her collateralized assets. Instead, the lender controls the assets’ private keys. This is in contrast to the more transparent DeFi loans, through which a trader can see their assets’ availability directly on the blockchain.
The takeaway here is that although custodial crypto loans are still far more accessible and affordable than traditional loans, they still depend on a centralized lending provider to enforce their terms.
Recently, many crypto holders have turned to DeFi for its transparency. Total value locked in DeFi lending protocols peaked at $50 billion in early 2022, up from nearly zero at the end of 2020.[1]
Non-custodial (DeFI) crypto loans
DeFi loans like that Aave and Compound offer are non-custodial. Rather than depending on a central organization to enforce the terms of the loan, they depend on smart contracts. If a trader takes out a DeFi crypto loan, the trader retains control of their assets’ keys—unless they default on the loan.
DeFi platforms cannot directly lend fiat currency. Instead, traders receive stablecoins that can then be exchanged for cash. DeFi loans tend to have a higher interest rate than custodial loans. DeFi, however, is more transparent than CeFi. For cryptocurrency holders who want to actually hold their assets’ keys, DeFi crypto loans are a must.
When to borrow against crypto?
Compared to the process of applying for a traditional loan, applying for a crypto loan requires relatively little. Credit checks are typically not required and instead, the amount of the loan you will be approved for depends upon the amount of collateral you’re able to use.
The loan-to-value (LTV) ratio is the ratio between the amount of the loan and the value of the collateral. If you put up $10,000 worth of crypto as collateral and receive a $6,000 loan in fiat or a dollar-pegged stablecoin such as USDT, your loan’s LTV ratio is 60 percent.
Because crypto markets are volatile, LTV ratios on crypto loans are typically low. There is always risk involved in borrowing, so do your research to determine what LTV you’re comfortable with.
What are the risks involved in crypto loans?
Finding the best crypto loans for your purposes begins with understanding the risks involved. Unlike assets held in traditional financial institutions, crypto accounts are not covered by the FDIC.
Consequently, crypto assets have no federal insurance if an exchange fails. With this in mind, three primary types of risk are inherent in crypto loans.
Technical risks of crypto lending
As in all cryptocurrency trading, there is a risk that protocols break down because of a technical problem or hacking. This risk is somewhat higher in non-custodial loans since all DeFi activity is completely algorithmically governed.
Counterparty risk of a crypto loan
The FDIC requires all traditional banks to maintain a certain level of liquidity; crypto loan providers are not subject to this requirement. If the market crashes, an unexpectedly large number of clients default on their loans, or if a platform breaks or is exploited, the crypto lending platform may find itself without the liquidity to return a borrower’s collateral.
Margin calls and forced liquidations
To prevent illiquidity during market downturns, lending platforms will issue margin calls or force liquidations. If a cryptocurrency’s value drops to a point where many borrowers’ LTVs are too high for the platform to maintain, the platform will inform borrowers that they must increase the value of their collateral or risk liquidation.
If the call is not met, the platform may liquidate enough of the collateral to bring an account’s LTV back to the maximum allowed ratio. In this case, a trader will have forfeited that portion of their deposit, will have incurred capital gains or losses, and may be charged transaction and broker fees.
Crypto loans without collateral
Crypto loans without collateral are in their early days. DeFi protocols such as Aave, dYdX, and Uniswap (as outlined above) offer uncollateralized flash loans. Flash loans allow users to borrow tokens or coins for a short time to perform specific transactions.
Flash loans are borrowed and returned within seconds using smart contracts that define the terms and conditions. If the borrower fails to repay or meet the contract conditions, the transaction is reversed and the funds return to the lender.
Investors typically use flash loans for arbitrage, through which they buy from one market and sell on another to profit from marginal price differences. Even a 1% price difference can lead to substantial gains with a large enough flash loan. Aave, for example, issues millions of dollars in flash loans daily.
There are a small number of crypto lending platforms that offer crypto loans without collateral for certain borrowers. For instance, Atlendis provides such loans to approved institutional traders.
It’s essential to exercise caution and do thorough research before engaging in any crypto borrowing. This space is still new and attracts scammers, and crypto loans without collateral pose special risks for investors. A good general rule is: if an offer sounds too good to be true, it probably is.
How are crypto loans taxed?
If a crypto loan is managed properly and all parties uphold the terms of the loan, the parties should not incur any taxes. The IRS considers cryptocurrency to be property, and using your property as collateral for a loan is not considered a cryptocurrency trade or sale and therefore is not a crypto taxable event.
However, several potential crypto loan scenarios could affect your taxes.
Crypto loan fees
Providers charge borrowers interest fees on their loans. These fees can range from around .5% APR to over 12% APR. If you use your loan for investment or business purposes, you may be able to write off these interest fees on your taxes.
Contact a tax professional for more guidance about business deductions.
Failure to pay back the loan
If you don’t pay back your crypto loan, the lender may liquidate all or part of your asset to recoup its losses. This could result in capital gains or losses for you, even though the lender retains the proceeds.
Forced liquidation
As mentioned above, if collateral is liquidated because of an unmet margin call, the borrower will be subject to capital gains tax on any increase in the collateral’s value between the time of its purchase and the time the lender sold the asset.
Self-repaying loans
Self-repaying loans, like those offered on Alchemix, do result in taxes owed. This is because the structure results in what is called “debt cancellation income.”
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Frequently asked questions about crypto loans
Here are some frequently asked questions about crypto loans and crypto lending.
Can I get a crypto loan without collateral?
You may be able to get a crypto loan without collateral. Platforms like Aave and Atlendis offer uncollateralized loans that can act as a revolving line of credit. Market conditions will impact the availability of these, so you’ll want to investigate further and research the terms around these loans.
Are crypto loans safe?
Any loan carries a degree of risk. Because crypto is such a volatile asset, you should be cautious about overextending your LTV and using crypto loans to trade on margin. It’s important to work with an established crypto lending platform and to understand exactly the terms of any crypto loan before executing an agreement.
If you’re extremely risk averse, you’ll want to fully vet your crypto lending platform of choice and will likely want to understand how heavily they’re insured.
How much can I borrow on crypto?
The amount you can borrow against your crypto will vary from platform to platform. A LTV is 50%, while a crypto lending platform YouHodler offers up to 90%. Check with your platform of choice to see how much you can borrow.
Do crypto loans count as income?
No, crypto loans do not count as income. Receiving cash against a cryptocurrency deposit as collateral is not treated as a taxable event and is similar to taking out a home equity line of credit.[2]
How are crypto loans paid back?
Like other loans, the terms of each crypto loan will vary. With your crypto lending platform of choice, you’ll make an agreement and will be expected to stick to the terms of payment. You can generally choose to repay a CeFi loan from three to 60 months, and upon repayment, you’ll receive your collateralized crypto back in return.
DeFi loans offer more flexibility, as your collateral is locked in a smart contract and returned when you pay off the loan and interest accrued.
Do crypto loans affect credit score?
Crypto loans can potentially affect your credit score but most likely will not. Most companies offering crypto loans do not typically conduct credit checks during their approval process.
That noted, prominent US credit bureau TransUnion does give the option for users to share their credit details with crypto-lending platforms, so credit checks may become more common across crypto lending services in the future. If you're concerned about a crypto loan affecting your credit score, check with the lender before applying.
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References
Last reviewed by Arthur Teller,CPA on September 25, 2023 · Sources
