Best Crypto Lending Platforms for 2023

A common question for those looking to borrow against their crypto is, “What is the best crypto loan?” This will depend on a number of factors, including the type of crypto you intend to borrow against, your region, and your risk profile.

Here are some of the crypto lending platforms that will help you access the best crypto loans available.

Aave

Best crypto loans for those interested in decentralized finance (DeFi), low borrowing rates, and uncollateralized flash loans.

Aave is a giant in the DeFi lending space, with markets on Ethereum, Polygon, Optimism, Fantom, Arbitrum, and Avalanche. In addition to regular crypto loans, Aave offers uncollateralized flash loans (which it pioneered), short-term fixed interest rate loans, an AMM market. It boasts high LTV rates and low borrowing rates. At time of writing, the Aave community treasury holds $111,067,300 in assets across four networks: ETH, Polygon, Avalanche, and Optimism.

Lenders to the protocol deposit their funds and receive aTokens in exchange, which accrue interest. Interest rates for stablecoins are between .5% and 1.3%.

Compound

Best crypto loans for those interested in DeFi borrowing on the ETH chain, with no minimums on borrowing or lending.

Compound was one of the first DeFi lending platforms, and has remained a reliable option for investors. It operates only on ETH, so investors can only lend seventeen types of tokens at time of writing, a lower number than many competing platforms.

Compound also has a somewhat steep learning curve, as its interest mechanisms work differently than most. However, it is a good option for those looking to earn compound interest.

Interest rates for stablecoins are between .6 and 1.3%. Compound also has an offer to earn 4% APR on USD balances.

Nexo

Best crypto loans for investors who desire insurance on custodial, centralized finance (CeFi) assets.

Nexo is one of the most popular CeFi lending platforms, which allows users to choose from 60+ collateral options and 40+ fiat currencies and stablecoins to borrow in, over 200+ jurisdictions. It may be a good choice for more conservative investors, because it’s backed by $150m in insurance from LedgerVault and an additional $125m by Bakkt.

The platform has processed over $130b over five years and serves more than 5m users. Nexo’s LTV rates are typically slightly higher than average CeFi loan providers. Borrow rates cap out at 13.9%, while on the lending side, you can make up to 17% APR. Nexo have also launched their own custodial wallet.

Unchained Capital

Best crypto loans for U.S. based traders interested in highly secure, CeFi bitcoin loans.

Among CeFi lenders, Unchained Capital stands out because it doesn’t rehypothecate (loan out again) funds. Additionally, it has a multisig collaborative custody model, which gives borrowers more transparency into their assets and increases security.

In this system, accessing collateralized assets requires three private keys. One is controlled by the borrower, one by Unchained Capital, and one by a third-party key agent.

Unchained Capital only offers bitcoin loans and only lends in the United States. Additionally, to use the platform, borrowers must use a hardware wallet. Its higher security comes with a somewhat higher barrier to borrowing: it has lower LTV rates and higher interest rates than most CeFi providers. The APR at time of writing for a 12 month loan of $10k USD against 1.4855 bitcoin is 15.65%.

YouHodler

Best crypto loans for traders outside the U.S. interested in CeFi loans with a variety of fiat and stablecoin options.

YouHodler offers instant crypto loans against over 50 cryptocurrencies with up to 90% LTV. Users can take loans in EUR, USD, CHF, GBP and stablecoins or other cryptocurrencies, with instant withdrawal to credit cards, banks, or exchanges.

Payment terms are “daily, when you want to,” which offers more flexibility than competing platforms. YouHodlers also has $150m in pooled crime insurance by Ledger Vault, to protect its users from losses.

With the Swiss-based YouHodler you can also earn up to 8.32% interest in stablecoins and nearly 10% in other crypto.

A crypto 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. To get a crypto 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.

Each lender 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 terms and conditions.

Once you’re confident you’ve chosen the right crypto lending platform, start and 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.

Turnaround time on crypto loans varies, although Nexo has been known to approve loans within seconds and fund accounts within 24 hours.

There are a number of benefits to crypto loans, 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.

There are two principal categories of crypto loans, described here:

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 those 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.

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.

Unlike assets held in traditional financial institutions, crypto accounts are not covered by the FDIC. Consequently, there is no federal insurance on any crypto asset in the event an exchange fails. With this in mind, there are three primary types of risk inherent in crypto loans.

Technical risk

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

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.

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, as in traditional trading, 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, there are several potential crypto loan scenarios that could affect your taxes.

Crypto loan fees

Providers charge borrowers interest fees on their loans. These fees can range from around 1% 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.”

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 flash 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.