Unlike the U.S Dollar, Euro has an overall central authority that manages and controls the currency. Cryptocurrency isn’t used in that manner. It is a digital and decentralized mode of exchange that is not governed by any bank or country. Crypto can be used to buy goods and services, purchase assets, or stocks. Cryptocurrency lending on platforms such as SmartFi is fast becoming prevalent!
Most crypto traders ask what is Smartfi, what benefits does it offer the Defi community?, “How much impact will it have within the crypto space?”. However, Smartfi is designed to ease cryptocurrency lending systematically and with lesser charges…
Moving on, when we talk about cryptocurrency lending, similar to this in your property case, land, house, and cars can be used as means of collateral while applying for a loan. So also can cryptocurrency be used as a form of collateral loan. That is why it is important to have your crypto holdings before applying for a loan.
What is Crypto Lending?
Crypto lending can be described as a form of secured loan where your crypto holdings serve as collateral in trade for liquidity from a lender that will be paid back in installments with interest. So far you repay the loan borrowed in full with the interest, and you have access to your crypto holdings at the stop of the loan period.
When we talk about Cryptocurrency lending in the US, there tends to be a difficult way to loan crypto. Some of the crypto supported are Dogecoin, Solana and Ethereum, etc. Many of the crypto lending platforms are available intentionally to remove US citizens and residents from using their services. The lending process grew to be popular in 2020 and since then thrived to billions on numerous platforms.
Firstly, it is important to note that cryptocurrency and all other related crypto activities are legal in the United States but haven’t been considered yet as legal tender. And this is because the US policy faces the fact that cryptocurrency lacks regulation and is the reason most crypto lending services stay clear.
Another thing is that there are different states which are governed by different policies. Some states in the United States still also have more liberty of crypto lending than others. The top five states which give more floor for cryptocurrency regulation are Ohio, Wyoming, Colorado, Texas, and California.
Subsequently, several states such as New York, New Jersey, Alabama, Kentucky, etc have set out to dig into crypto lending. This is a result of the fact that most investors believe and see how higher profits can be made through cryptocurrency lending.
Another major turn-off for crypto lending is the taxation law that is involved. This is only stated in the United States and is not related to any other country. The laws which govern cryptocurrency state it should be taxed like a stock. So if you buy crypto and save it for a year, you are meant to pay long-time term capital profits when you trade. Meaning for any gain you make, 15% belongs to the federal taxes.
For Crypto lending, the taxation policy depends on if the lender is either a business possessor or self-employed. There are stipulated factors that count for each and the taxation differs between both. The policy however suits the borrowers, the price of the loan, depositing of the collateral, and refund of the principal all serve as non-taxable events.
Your best option is to search for the crypto lending platform that operates in the United States. Platforms such as SmartFi, Unchained Capital, and BlockFi all give room for US citizens but their terms vary from one state to another.
Step by step for Crypto Lending in the United States
- Step 1: Find yourself a trustworthy and acceptable crypto lending platform in whatever state you might find yourself in.
- Step 2: As a lender, the first thing to do is read and understand all the terms and conditions. If you are comfortable with it, then you go ahead to deposit your crypto on the forum and start gaining earnings.
For borrowers, you select the loan term with which you are comfortable, and your loan will be assessed and processed usually within 24 hours. At this junction, you will need to deposit some amount of your cryptocurrency as collateral before the loan is finally approved.
These are the essential steps to take and don’t require any long-term method, however, most cryptocurrency platforms will ask for means of identity before using their platform. Anyways, if you are new to crypto lending, be sure to read and understand every step of the process and loan terms before deciding on whatever to do.
Crypto Lending Charge
There is however a charge that comes with every crypto lending site which is called the APR i.e Annual Percentage Rate. This will determine how much will be paid back which depends on
- Loan term length.
- The crypto lending site you are using.
- What asset was received as collateral for the loan either Ethereum, Bitcoin, or US Dollars.
- The exact amount that is borrowed.
- Like a traditional bank would require a credit check, bank statements, and all other forms of documents to apply for a loan. Crypto borrowers are allowed to secure loans for those who aren’t qualified for bank loans.
- Crypto lenders yield higher interests on crypto holdings at higher rates compared to savings accounts.
- There are low-interest rates. Generally speaking, a regular crypto loan interest is below 10%, which is minimal compared to traditional banks.
- Different choices of collateral: Not crypto can be used for collateral loans, other platforms tend to allow the US dollar, fiat currencies, and stablecoins.
- No use of Intermediaries. To borrow at a traditional bank, there is usually a need for a guarantor to stand in the gap and fill some documents. In cryptocurrency, whether the decentralized or centralized exchange, the crypto loan is carried solely by oneself.
- Easily Accessible. Anyone that can offer collateral can request a crypto loan. The platform is readily available at any hour of the day. No signing of documents is required, just a government-issued ID, and your collateral should be provided.