How do I apply for a crypto loan?

How do I apply for a crypto loan?

The concept of decentralized finance, or DeFi, encompasses all financial services based on cryptographic technology that does not depend on intermediaries, brokers, and banks.

In other words, they are decentralized investments and people have access to their funds at all times.

As of today, these mechanisms total US$15,151 million deposited in DeFi protocols, according to data from Coinmarketcap.

However, the industry today is worth much more if one considers the market capitalization of DeFi coins, as well as the traditional financial institutions that are now considering integrating DeFi services. In this case, it is already US$142.328 million according to the same source.

One of the most popular DeFi services are decentralized cryptocurrency loans or "lending" in which users deposit their digital assets at a price and mortgage them to receive a percentage of cryptocurrency profits in return.

Once the person can repay the loan, the asset that was deposited is returned to their digital wallet.

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And how does this system work?

Decentralized lending works just like a pawn shop. You leave a bicycle as collateral and take $10,000. In this case, you buy an Ether - the Ethereum cryptocurrency - and users don't sell it because they think it's going to go up in price. 

But in the middle, they need money and so they enter a lending protocol and deposit the Ether as collateral. Next, the mechanism lends them up to US$1,000 in DAI, the stable cryptocurrency. Then, they use this money, and the day they want, they can pay it back. In return, the protocol returns the collateral originally deposited.

With the capital obtained in one of these decentralized loans, users begin to "leverage" themselves with cryptocurrencies to generate high investment returns. For example, they invest one Ether in a protocol to receive US$1,000 in DAI and buyback Ether and bet on a future rise in prices. 

When their Ether rises, they return the US$1,000 and receive back the digital asset they left deposited. This simple figure allows lending beneficiaries to earn large profits to continue investing.

The step-by-step for borrowing in cryptocurrencies

The first thing a person needs to apply for a cryptocurrency loan is to have an account on MetaMask, the digital wallet. Then, he must buy Ether or DAI, two of the most popular cryptocurrencies in this type of decentralized finance mechanism.

The procedure is similar in all the protocols, what changes are the digital assets that one can block as collateral and the margin ratios, that is, the percentages that you are allowed of debt before a liquidation, that is, before selling your assets to pay what you owe because they no longer cover the debt, generally because of the fall in their price.

These protocols are quite secure because they do not depend on human beings but are autonomous technology.

In addition, they are audited by white hat hackers who check for possible computer vulnerabilities very frequently. As for the trust in the system, it is expressed in the amount locked by other investors. 

How to apply for a crypto loan

Venus Protocol

Venus Protocol

Venus Protocol is a decentralized lending protocol that allows users to deposit as collateral different types of cryptocurrencies and borrow other cryptocurrencies.

How to use Venus Protocol? First of all, you have to enter the protocol's official site at this link. Secondly, click on "Launch app" and then the user will enter the Venus Protocol panel to start trading, after linking his MetaMask digital wallet.

On the dashboard are the main functions. In "supply market" you activate the collaterals you want to deposit for the approval of the contract and when it is red, you can deposit the desired amount and block it.

In each step, you have to approve the digital wallet, and then, in the "borrow market" section, there are the assets that can be borrowed. Something that is not recommended to do is to choose stablecoins such as BUSD, USDC, USDT. In "borrow" you borrow, in "repay" you repay.

How much can you borrow? The ratios in Venus Protocol are up to 60%, that is, if you deposit Bitcoin while they are trading at US$10,000, users will be able to borrow up to US$6,000.

When 100% is reached, the assets are liquidated, therefore, it is best to always be below 50%.

Ramp DeFi

Ramp DeFi

This is a protocol that works as a lending platform that allows users to borrow the stable cryptocurrency rUSD at very low rates.

In the previous protocol, users invest a total sum of money, and based on that the total loan was calculated. In the case of Ramp DeFi, settlements are made per "vault", i.e. per individual smart contract on Ethereum, the smart contract network.

In these vaults, users can store their cryptocurrencies and obtain tokens that can then be used as collateral.

In simple terms, vaults function as pools of funds that use particular strategies to maximize the returns on the assets they contain.

Since settlements in Ramp occur on a per vault basis, they do not add up all the assets and on that basis calculate the ratio. Ramp DeFi is individual, per vault, which allows this protocol to manage a zero risk level.

Anchor Protocol

Anchor Protocol

This decentralized lending protocol uses the TerraUSD (UST) cryptocurrency, a digital asset that is backed by Terra (LUNA). This digital asset is linked to another medium of exchange, so it is stable when the crypto market suffers a general downturn.

Anchor Protocol allows you to deposit $bLuna and $bETH as collateral and withdraw $UST for 45% of its valuation, but with a 15% margin to liquidate it. This gives you time to increase your collateral in case of an extreme market correction, without losing your cryptocurrencies.

To enter this protocol, you have to buy UST, Terra's synthetic dollars, and then, when depositing into the protocol, you are credited with $bLuna bonds. These bonuses are "locked" in Anchor Protocol and can be used to exit the platform in other protocols such as Mirror and continue to generate income with those guarantee bonuses.

AAVE

Aave

This is one of the most popular protocols on a global scale and users can deposit their cryptocurrencies to receive interest. The official site of the liquidity protocol can be accessed at this link.

In this protocol, it is recommended to request stablecoins in the "deposit interest" section. Then, within the "Control Panel" people can visualize how much money they requested, what are the valuation of their total deposits, the valuation per vault, and the security of the loan, among other factors.

How to view all decentralized loan protocols

The DeFi Rate and Pools.fyi sites allow users to evaluate the investment returns and fees of all protocols in the crypto ecosystem.

The information on those sites is updated hourly and allows people to track fees and investment returns.

As always, the key to not losing money is to study all these protocols as they can be a double-edged sword for those who do not have sufficient knowledge, and, for this reason, they should be used with responsibility, knowledge, and professionalism.

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