Crypto lending platform template
These smart contracts determine interest rates, lock and hold cryptocurrency, automate payouts, liquidate collateral upon default, and release collateral upon completion under the terms of the agreement. At this moment, there are various types of crypto lending platforms, including: peer-to-peer lending P2P where the borrower is automatically matched with the lender through the platform; peer-to-contract P2C where the borrower is connected to a pool of lenders, all participants in the platform; and direct lending where the service platform lends the money directly to the borrower.
Crypto lending platforms allow the borrower to leverage its cryptocurrency to obtain money without having to sell the crypto. The lender benefits from a decentralized self-executing arrangement that is safe, simple and minimizes many risks associated with lending to cryptocurrency holders, especially in the case of a default. Traditional institutions such as banks and investment funds will soon follow and join the crypto lending sphere as more and more projects, start-ups and corporations they lend to have revenue, investments or currency in crypto-assets.
In Quebec, security interests are governed by the Civil Code of Quebec. Even though cryptocurrency or crypto-assets are not explicitly mentioned in these regulatory regimes, lenders must comply with these rules to ensure their security interests are valid and enforceable.
In addition, lenders must consider tax regulations, transfer limits and currency regulations applicable to both cryptocurrency and other crypto-assets as these may impact the loan structure, the transfer of proceeds as well as the repayment of principal and interest. Protection of Lenders Against Market Volatility Lenders must consider and establish effective protection against potential risks due to market volatility, especially in cases where crypto-assets represent a large portion of the secured collateral.
When the value of cryptocurrency decreases significantly, so does the value of the collateral, effectively changing the loan-to-value ratio and exposing the lender to significant risk of under-recovery in the event of a default. As a result, lenders must design appropriate mechanisms and processes to obtain additional collateral from borrowers in the event of value fluctuations. Crypto lending platforms can require a borrower to either provide additional collateral or make payments under the loan to restore the original ratio under the loan agreement.
While sometimes maintaining the loan-to-value ratio involves a monthly borrowing rate calculation based on protocol formulas, in particularly volatile environments it could involve immediately covering the percentage of the collateral value lost by volatility. Lenders might also opt for over-collateralization as a condition for granting the loan in the first place. The preferred option depends on the type and structure of the loan itself, for example, whether it consists of a revolving credit facility or a term loan.
Use of Cryptocurrency by Borrowers and Due Diligence Lenders must clearly delineate the rights held by the borrowers in their cryptocurrency serving as collateral throughout the crypto-loan term. Many options are available to the parties depending on whether a borrower is comfortable putting its cryptocurrency under the care of a trustee or a custodian, with limited to no access, or if it wants to continue to use it in some way or another.
There are also advantages for the lenders should they set up a trustee or custodian structure, since in doing so they obtain control over the collateral and gain the possibility of earning yield revenues on the cryptocurrency deposits under their management, on top of earning the usual interest payments and credit fees.
Thorough due diligence is also very important. Before granting credit facilities to a borrower, lenders must take steps to ensure all cryptocurrency wallets related to the collateral under the loan agreement are disclosed in sufficient detail. Due diligence also ensures the intended use of the collateral by the borrower is clearly set out and compliant with the terms of the loan agreement.
Questions of due diligence should cover the ownership of cryptocurrency portfolios as well as all their business activities involving cryptocurrency, among other things. Instead of earning less than 0. Another great feature for both crypto and fiat currency, MyConstant has no lockup times —— you can access your investments whenever you need.
Best for DeFi Loans: yearn. Instead of a trusted 3rd party like BlockFi, yearn operates on smart contracts. Yearn offers a suite of products in the decentralized finance industry. Its 2 most popular products are yearn vaults and yEarn. The contract autonomously allocates capital based on the opportunities present in the market. The lenders which yearn. Much like the centralized exchanges above, yearn.
Also, the interest you earn on your crypto is highly variant based on the cryptocurrency you fund the protocol with TUSD offers the highest stablecoin yield at Argent currently supports protocols such as Aave, Compound and yearn. There are a few drawbacks to argent when comparing it to centralized crypto loans, however. First, argent is an Ethereum wallet. Is Crypto Lending Safe? Generally speaking, the majority of risk one takes on in crypto lending is the volatility of digital assets.
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