The crypto sector has made a significant impact on how we view the financial market. Normally, the market is not always accessible to everyone. But crypto has removed that barrier. This revolution is solely due to the decentralized finance sector. This sector, just like banks, provides decentralized assets with a twist. There are four options: lending, margin trading, lending, spot trading, and borrowing. It is much easier to take crypto loans in DeFi than it is to use a bank. Because the borrower will not have to share their personal information, this is a great advantage.
What are Crypto Loans?
Digital assets sent to a wallet do not bring in any profits, regardless of how small they may be for the trader. The trader does not get any rewards for keeping the assets, even though their value is subject to market fluctuations. DeFi loans are able to bridge this gap. DeFi loans are specifically crypto assets that borrowers lend. DeFi loans are similar to traditional bank loans. DeFi loans are open to all borrowers, while bank loans are only available to a select few. Most traders use lending pools to generate interest in lending.
How do Crypto Loans work?
Borrowers often provide collateral to be able borrow money. The collaterals are usually more valuable than the crypto they plan to borrow. They would have to facilitate the loan with a loan amount equal or greater than the amount they are borrowing. The collaterals can be in different forms.
If a borrower wishes to borrow one Ethereum, he would have to send one or more Ethereum to DAI. In this instance, DAI is the native token of MakerDAO’s lending platform. The trader would repay the loan and pay 10% interest after he/she has used it. This is the only time the protocol will return the initial collateral.
Steps to Get a Crypto Loan
This tutorial will show you how to successfully get a loan using MakerDAO’s lending platform.
First, you will need to send ETH to any Ethereum wallet that you choose. In this instance, we will use the MetaMask wallet. Next, you will need to visit the Collateralized Debt Portal platform. After connecting your wallet to the platform, click on “Open CDP” button. Next, you will need to connect your wallet with the portal. Next, enter the number of Ethereum you wish to convert to DAI.
After you have read the terms, click on the “Collateralized and Generate DAI” button. Your deposited ETH is now considered collateral. You now have your borrowed DAI. Once you have received DAI as collateral, you are now able to perform the activities you want using the minted DAI. One thing to keep in mind is that there are many other services that offer crypto loans. Platforms such as Dharma, Compound, and others allow traders to borrow tokens.
Conclusion
Although the steps are simple for an average trader, it is not possible to do them without expert guidance. It is because even the most experienced traders can find it difficult to connect their wallets. Most platforms set their loan collection rates at 1.5x the amount of the loan collected. A trader will need to pay $150 to facilitate $100 loan.