The second half of 2021 was a challenging time for the cryptocurrency market, especially the crypto lending sector. As the bull market began to fade, lending and borrowing activity appeared to be dwindling. Additionally, major players like BlockFi and Celsius were filing for bankruptcy, leading up to even larger collapses such as what happened with FTX.
As centralized crypto lending recovers and improves its risk management, decentralized lending platforms have continued to gain popularity. According to Dune Analytics, decentralized finance (DeFi) has experienced a 40-fold increase in growth since 2020. Blockchain analytics firm DeFi Pulse estimates the total value locked (TVL) in DeFi protocols to be $80 billion, representing a 10-fold growth since May 2020.
This article will discuss why crypto users should consider taking a loan instead of selling their Bitcoin and the drawbacks of traditional custodial loans.
Crypto users can benefit from taking loans against their crypto holdings in several ways:
A custodial loan is a type of loan where the borrower pledges assets, such as stocks or bonds, as collateral. The pledged assets are held by a custodian and act as security for the loan.
Traditional custodial loans come with loan fees, including origination, application, appraisal, and more. These fees can add a significant amount to the overall cost of the loan, making it harder for the borrower to repay the loan or even consider taking it. Moreover, traditional custodial loans may have prepayment penalties, a fee imposed on borrowers if they choose to pay off the loan before the agreed loan term. These fees are difficult to plan for if the borrower has variable income. This can create a barrier for the borrower if they achieve financial stability and want to pay off the loan early. The application process for custodial loans can also be lengthy and time-consuming, taking several weeks or even months for the loan to be approved and disbursed. This can be inconvenient for borrowers who need the money quickly and can make it difficult for them to plan and budget for the loan.
DLC.Link connects the benefits of borrowing funds against your Bitcoin, without the hassle of traditional custodial loans. Through our hybrid on-chain and off-chain Bitcoin Attesters, our platform allows users to bypass the outdated and lengthy loan set-up process with smart contracts. These smart contracts connect Bitcoin holders to the entire multi-chain, blockchain-based financial system being built. The variety of ways to leverage your Bitcoin on-chain is growing rapidly and being able to take a loan against it is just the beginning of an entire ecosystem of apps built using DLC.Link.
Join us as we enable a Trillion dollars of Bitcoin capital to be used in smart contracts. Contact us: