Cryptocurrency lending is a rapidly growing service in the crypto sphere, which gives cryptocurrencies the versatility to edge out traditional forms of financing. The merits of this new form of loan are clear, which has resulted in it carving out a significant niche in the crypto sphere. Not only is it attractive and convenient for existing crypto users, it creates a solid reason for newcomers to adopt crypto.
The focus then shifts to the different lenders and their benefits, this article compares how BlockFi, Nexo and Coinloan offer crypto loans. Attention is given to how the three differ on mode of operation and service.
BlockFi is a bitcoin loans platform based in the US. It serves a global client base with exceptions to jurisdictions sanctioned by the EU, US and UK and recently spread its wings to India. Currently available in 47 US states, it is a promptly expanding crypto lending platform.
BlockFi owes its huge success and acceptance to its retail investor-centric model of loaning. With rates from 4.5 % to 12 % Annual Repayment Percentage (APR), it easily could be the lowest rate crypto loan lender in the market. Unlike lenders who fix a specific APR or interest rates, BlockFi customises its APR depending on the borrowers’ collateral. APR is calculated based on the Loan-to-Value (LTV) ratio where BlockFi demands a minimum of 50% LTV for all of its loans.
Its minimum loan offered is $2,000, meaning a borrower needs a minimum of $4,000 in crypto asset(s) value to process a loan. This is in line with its ‘over collateralisation’ terms to ensure good loan performance. At any point that crypto asset(s) prices drop occasioning close to 70% LVT, a warning trigger is mailed to borrowers to either increase collateral deposits or settle the loan within 72 hrs.
BlockFi loans mature in one year. Within the given period, borrowers have the flexibility to repay interest at own discretion and comfort. The interest should be settled within the year; else the platform sells off the collateral to recoup interest and principal. With successful completion of interest payment, a borrower can either pay back the principal amount or re-service the loan at previous rates.
While re-servicing may incur more costs in interest, it is suitable for borrowers who can’t afford to make payments for the principal amount at the time. To mitigate the burden of huge principal payments, BlockFi allows for regular repayments on the principal amount alongside interest at any time of the loan period. A borrower can also choose to pay off the loan earlier, of which interest on the remaining months is written off.
The loan application process with BlockFi is straightforward and simple. Borrowers do not have to be users of the platform to apply for loans. Requirements are few, thus with as little as an email address, social security number and date of birth, one could have a compliant KYC.
A borrower creates an account with BlockFi, after which, they receive prompts to apply for the loan. Once submitted, the application is reviewed in 24 hours. If a loan application is accepted, a borrower is required to deposit either BTC, LTC and or ETH in a third party wallet called “Gemini Wallet” and provided by BlockFi’s custodian, Gemini.
Approved loans usually reach borrowers’ accounts within the day. Loans are available in fiat through bank wires or in stablecoins deposited to wallets provided by borrowers.
Deposits made to Gemini are insured by the custodian who replaces client crypto in case of loss. BlockFi is backed by ConsenSys and Coinbase Ventures while its custodian Gemini is regulated by the New York Department of Financial Services.
Nexo has a number of similarities with BlockFi. It operates in over 200 jurisdictions and supports 45 + currencies on its platform.
Its lending process is executed through the Nexo Oracle, which is an automated system operating on a pre-written logic based algorithm loan contracts. It has a set of conditions that once met, executes certain functions as determined in the algorithm. One such function is its credit line which is created immediately one deposits security to be held by Nexo. As such, Nexo is an instant lender who unlocks value as soon as crypto assets are deposited in its wallet.
Its crypto loan limit is based on the crypto loan market value. Nexo’s minimum loan is $ 500 worth of crypto with a maximum limit of $2M. Nexo accepts deposits in BTC, ETH, XRP, LTC and its native coin Nexo alongside fiat. Bank deposits to Nexo cannot be made through third parties. Borrower accounts have to match depositor accounts. Borrower info goes through a further verification process managed by Onfido who handle Nexo’s KYC and AML compliance. The SEC approved BitGo is Nexo’s custodian and insurer.
Like BlockFi, Nexo has no credit checks. Its interest rate however, is higher than that of BlockFi and starts at 16% APR. It offers a 50% discount for both interests serviced through Nexo and collateral held in Nexo. A borrower has to choose the interest waiver to take; it either is the collateral or interest repayment, not both. If a user opts for interest repayment in Nexo, they pay an 8% APR.
Importantly, interest is charged from the point of withdrawal. Of which, interest is only charged for withdrawn loan. With Nexo, interest is imposed on a daily basis and automatically debited from available credit limit at 00:00 CET. This interest is charged against the outstanding principal balance. While early repayment is approved and not penalized, loans repaid within 30 days of withdrawal are charged interest for the full 30 days on the Nexo platform. Like BlockFi, security held by Nexo is unlocked by the platform only upon failure of repayment.
Loans by Nexo are deposited in borrowers’ bank accounts or tether addresses given. They can further be withdrawn or spent using Nexo credit card. Processing of loans on Nexo takes up to 24 hours after collateral is deposited in Nexo wallet. The transfer to borrowers’ bank accounts takes between 3-4 days.
Coinloan’s offer differs from both Nexo and BlockFi in that while the latter two directly lend loans to borrowers, Coinloan facilitates the meeting point for lenders and borrowers. The Coinloan platform runs services for both lenders and borrowers of a range of cryptocurrency. Here, the platform charges a service fee of 1% of the amount borrowed.
Interest rates and repayment terms are negotiated between lenders and borrowers. The platform promotes personal/individual negotiations. This allows the concerned parties to negotiate on loan interests, thus bringing them to as low as agreeably possible. The processes on the platform can be manual or based on an algorithm that facilitates automated borrowing features. When automated, lenders and borrowers are matched according to specifications and the platform executes transactions on behalf of the lender.
Using this model, investors deposit fiat or the crypto they wish to lend. The borrowers in turn deposit their crypto assets in Coinloan’s ‘My Wallet’. The interest earned and principal amount is credited to the lender at the end of the lending period. Similarly, collateral is released back to the borrower once the interest and principal is paid back.
Loan durations on Coinloan range from 7 days to 3 years. In between, there are 6 months, 1 year and 2 year loan repayment periods. Coinloan’s crypto to crypto lending is favorable for borrowers who wish to trade in crypto that they don’t have.
The Coinloan platform accepts collateral and payment in BTC, XRM, LTC and ETH as well as CLT. Like Nexo, interest payment in the platform token, CLT, attracts a 50% discount. Noteworthy, repayments on the Coinloan platform are made in the loan currency only. Coinloan withdrawals can be made through local bank transfers, SEPA and bank cards.
On the Coinloan platform, CLT token holders receive better credit conditions. This is similar to Nexo’s 50% discount on collateral and interest repayment through its native token. Whereas Nexo and Coinloan actively favor their tokens in the loaning process, BlockFi concentrates on an ‘equal loaner’ model where the borrowers receive the same terms on all crypto currencies.
These are a few of the market leaders at this time and as this niche area continues to grow more options will become available, enabling additional lending services and package variety. The differences in interest rates, length of loan and repayment terms, etc will dictate which is best for the consumer. As more options become available to individuals and organisations considering a cryptocurrency loan, it’s best to consider what is the best option for the unique situation.