Crypto Loans | DeFi 101

Want to leverage your crypto holdings without selling?
Enter collateralized loans: borrow funds using your crypto as a security.
What are collateralized crypto loans?
- You borrow funds (e.g., ETH) by locking more valuable crypto (e.g., BTC) as collateral.
- Think of it like a pawn shop, but with digital assets instead of physical ones.

Key points to remember:

https://preview.redd.it/u43vw5gf8lic1.png?900&format=png&auto=webp&s=cfc16df56b57f993d6cd685090014a1252cd8cfd

• Overcollateralization: The collateral value is usually higher than the loan amount (e.g., 1.5x your desired ETH loan).
• Price Fluctuations: Crypto prices are volatile. Collateral value changes too, impacting your loan health.
• Margin Calls: If your collateral value drops significantly, you might face a margin call:
  -Add more collateral.
  - Pay down your loan
  - Risk liquidation (forced sale of your collateral).
  Example:
  - You borrow 1 ETH (worth ~$1,500) with 1.5 BTC (worth ~$2,250) as collateral.
  - If the BTC price drops, your collateral value decreases.
  - To avoid liquidation, you might need to add more BTC or repay some of the ETH loan.
  Think twice before using crypto loans:
  - While convenient, they involve significant risk.
  - Understand the terms & conditions carefully.
  - Only borrow what you can afford to potentially lose.
  Further considerations:
  - Interest rates: Crypto loans typically have higher interest rates than traditional loans.
  - Platform fees: Compare fees across different platforms for the best deal.
  - Security: Choose reputable platforms with robust security measures.
  Note: Crypto collateralized loans are a powerful tool, but use them with caution and a clear understanding of the risks involved. Do your research and explore alternatives before making any decisions.