Crypto lending is the second largest DeFi sector after Decentralized Exchanges in terms of TVL (Total Value Locked). However, it is the most attractive destination for holders to earn passive income. Numerous crypto lending platforms are emerging there each day in the crypto space, and the majority of these platforms offer only overcollateralized loans.
Each crypto platform has its perks to offer and only a handful provides crypto loans with zero collateral. The zero-collateral crypto lending and borrowing platform do not require a borrower to collateralize their crypto assets. There are certain key factors that one must keep in mind while choosing a crypto borrowing platform with no collateral because many a time they charge huge interest or fees for high risks associated with zero collateralization. Before we move to the factors that must be kept in mind while choosing a zero collateral crypto lending platform, let us first understand what zero collateral means in crypto lending and how it is revolutionizing the entire crypto space. After this, we will discuss the 5 best crypto lending and borrowing platforms where you can borrow crypto like Bitcoin and Ethereum without any collateral.
Zero-Collateral Crypto Loans Explained
Zero-collateral crypto loans are the ones in which a borrower is not required to put their crypto assets as security or collateral against the loans they are taking. Generally, Crypto loans are issued based on the value of the crypto the borrower deposits as collateral. There are several advantages of borrowing crypto loans with no collateral. Although the majority of the DeFi lending platforms ask for over-collateralization due to the volatile nature of the crypto assets. Overcollateralization means the borrowers have to deposit substantially more than the amount they wish to borrow. This entire process of over-collateralization is acting as a barrier to the growth of the entire crypto sector and limiting.
Users must have substantial capital to ask for collateralized crypto loans. On the contrary, uncollateralized loans are open for all making the ecosystem accessible to everyone around the globe. Removal of crypto loans without collaterals can provide a great boost to the development of the debt market. It is also truly decentralized in nature. However, these advantages can only be of use if the borrower finds a genuine zero-collateral crypto lending platform.
Factors to Choose a Zero Collateral Crypto Borrowing Platform
What makes any crypto lending platform the best platform for a user? Here are a few factors we must keep in mind when comparing multiple crypto lending platforms, especially when offering loans without any collateral.
1. Platform security: You must carefully analyze the platform's security features security before using it. Go through the previous track records of the platform and associated news regarding any fault in its security system for better understanding.
2. Lending duration: A lot of times, many DeFi platforms fix the lending durations for zero collateral crypto loans. Such loans are available only for a fixed time period and must be returned within the same transaction. Check if the platform you are willing to choose has such services and if they satisfy your needs.
3. Fees: You must compare the fees charged by the platform with a few others. Since the crypto loan sector is new and very few users know about the existence of zero collateral crypto loans, many platforms tend to keep high fees due to high risks involved.
4. Interest rates: There are platforms that show all the glittery stuff about zero collateral crypto loans but tend to keep enormous interest rates. Go through the interest rates very carefully and do not overpromise.
5. Deposit Limit: Check if the platform requires any minimum deposit amount from you before borrowing.
There are several other factors that you can consider like Blockchain protocol, TVL, and user-base but the 5 factors mentioned above are
Teller protocol is a decentralized software that allows unsecured DeFi crypto asset lending and borrowing via an open order book model.
Teller allows borrowers to bridge their off-chain credit data on their on-chain loan requests. The user proposes a loan request and the lenders then choose which loan request to commit to. Lenders and borrowers can directly transact once the loan conditions requested by the borrowers, along with their data are agreed upon by the lenders. The borrower has the full discretion of the information appending to a loan request.
If you want to try securely how zero-collateral borrowing works, Teller’s Ether Money Market is the best option available in the market.
Additionally, Teller conducts various contests and competitions where, as a reward, it allows its users to get zero-collateral loans of USDC.
Teller is trying to bring some of the major financial marketplaces to decentralized finance. In addition to the markets and options mentioned above, Teller has various other lending pools like:
It is the first loan market that allows you to purchase a non-fungible token (NFT) and artwork via a Buy Now Pay later model. Every NFT gets locked in escrow till the entire loan is completely paid.
This market has both unsecured as well as secured lending options where popular coins such as BTC, ETH, etc are to be provided as collateral. Although the entire transaction process takes place on the blockchain, borrowers can even include their off chain data while applying for the same. Before this market, the borrower had to liquidate his or her crypto holdings and convert them into fiat money, thereby exposing themselves to fees, loss of position,, and taxation.
Similar to these two, Teller provides several other markets there. Users can launch their own lending and borrowing markets, raise debt capital and even fund businesses with the help of this protocol. Since the entire system is transparent flexible, users can set their own loan conditions and build a reputation on-chain simultaneously. Its easy to use user-interface and high-security features make it all the more suitable for unsecured lending and borrowing.
CoinRabbit also offers a straightforward user interface, and the user is not required to complete his KYC to avail of the crypto loan. All they need to do is enter their phone number and email ID to create an account.
Apart from providing a simple and smooth experience to its users, there are multiple security layers and AML checks before a transaction is carried out. Once the funds are received, a system of cold wallets is deployed to withdraw them separately. Users can always apply a 2-factor authentication to their accounts for additional protection.
CoinRabbit also provides unlimited time frames for some of their crypto loans. Users can either opt to repay them partially or in full when they consider the time to be in their favor. Users can also decrease the liquidation price as flexibly as they want. Lenders are paid interest on a daily basis and can take out their profit when they wish to.
Goldfinch’s platform offers zero collateral loans by extending credit lines to lending businesses. Here’s how it works. These credit lines are then used by these businesses to borrow stablecoins from their pool and exchange it for fiat money. This fiat money is then deployed to the local markets. In this manner, the protocol provides some utility to the crypto that are part of its platform. It allows the local markets to access the global capital while handling all the business side of the transactions on the platform.
The lenders can deposit their crypto assets to the pool. Interest is paid back to the lenders as soon as the businesses make their interest payments back to the protocol. This way, their protocol is trying to build a decentralized credit platform that has the potential to empower everyone across the globe to become a lender and not just limit it to the traditional financial systems.
Aave is a DeFi protocol allowing users to borrow and lend crypto assets along with real-world assets (RWAs) without needing to go for a centralized system. Lenders can earn interest while borrowers have to pay interest through the protocol. Initially built on the Ethereum blockchain, Aave has expanded to several other chains such as Harmony, Fantom, and Avalanche. While Aave is a DeFi lending platform it uses a decentralized autonomous organization, DAO for its operation and governance.
Although Aave allows flash loans- uncollateralized crypto loans open only for a small time period, it is more famous for its collateralized crypto lending system. However, since the crypto sector is so volatile, just like other platforms it also demands overcollateralization. So if you want to borrow a $500 crypto loan from Aave, you would need to put more than that amount of a different crypto asset as collateral. In case the price plummets, the user's collateral can be liquidated in case it no longer covers the amount borrowed. Thereby the protocol takes the collateral away to cover the cost of the loan.
However, to protect certain crypto users from such situations, Aave pioneered the concept of flash loans. Flash loans are loans that have their tenures lesser than a few hours or sometimes a few minutes. Users can easily lend and borrow crypto assets without collateral to buy or sell assets. However, the original amount has to be returned in the same transaction while pocketing profits.
Atlendis calls itself a capital-efficient decentralized finance lending protocol that allows users to receive zero collateral crypto loans. The lenders can choose the borrowers they wish to commit to, decide on the rates that are favorable to them both, and can even control the yield they earn.
Atlendis allows only institutional borrowers to obtain competitive loan terms thereby bringing a capital-efficient lending system that is not present in the case of over-collateralized crypto loans. These institutional borrowers can be both protocols and decentralized applications (DApps).
Once these borrowers have been whitelisted they can access specific liquidity pools thereby strengthening the security of the platform. With the help of the Atlendis bid order book, borrowers can have access to instant loans at a very good rate. The principal along with the interest on the crypto loans are repaid once they mature.
There are numerous platforms springing up each day in the DeFi space promising various forms of perks and rewards. In this crowd, it becomes equally important to research their backgrounds and security features in depth. Before borrowing or lending crypto assets from any platform, users must do the required due diligence. The factors stated above must be taken into consideration. Those mentioned above 5 best platforms to borrow crypto without any collateral are some of the most preferred platforms in the evolving industry of uncollateralized crypto loans and shall help you try this revolutionary feature in a secure and safe environment. Teller’s Ether Money Markets offer the most convenient and secure market to borrow unsecured uncollateralized loans.
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