Helio Lending

  Helio Lending is a cryptocurrency lender, based in Australia.The lending service provides holders of cryptocurrency a safe and secure way to access fiat funds, without selling any of their cryptocurrency. to know more visit   https://heliolending.com/  

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Stablecoins vs Elastic Supply Coins – Which are Better for Loans?

The crypto industry is immensely volatile. This is due to both its infancy, and its influx of retail investors. While volatility can be favorable to some (such as day-traders), most people find it uncomfortable and worrisome. As a means of curbing this, developers created coins and tokens that are tied to certain values, allowing for steadiness and peace of mind. There are two main categories of coins that achieve this: stablecoins and elastic supply coins.

Both are designed to be significantly more predictable, and for this reason, they make for fantastic forms of collateral when getting crypto-backed loans. On the surface, they can even seem very similar to each other, but the technology and economic principles behind them are wildly different. So which is the better collateral: stablecoins, or elastic supply coins?

Stablecoins use reserves

Stablecoins, such as Tether, TrueUSD, and Dai, keep their assets at consistent prices by using reserves of fiat money. For every coin that is released or minted, the company has an equal amount of the fiat asset that the coin is pegged to. For instance, for every Dai that is minted, the company also has the same amount in US dollars.

This is a relatively simple means of keeping a coin tied to a certain asset, as there is always a 1:1 ratio of crypto and fiat. Stablecoins can also be pegged to other things such as precious metals or even stocks (although these are usually referred to as synthetics).

Stablecoins are popular in the crypto-lending industry because they are extremely consistent. This means that both the borrower and the lender can be confident that the worth of these coins will be unchanging. Plus, stablecoins have been around for some years now, and so they are relatively trusted and accepted by most lenders.

Elastic supply coins use algorithms

Elastic supply coins keep their prices stable in a very different way. Instead of having a reserve of fiat or physical assets, they maintain stability by algorithmically altering the circulating supply of coins to match the market cap. In cryptocurrency, market cap represents demand. Usually, when the market cap rises, the worth of each individual coin rises in price. However, elastic supply coins try to avoid this from happening, as their aim is to keep to a certain price (or price range). To achieve this, the circulating supply is programmed to change whenever the market cap changes.

For instance, when the market cap (or demand) increases, so does the circulating supply. This means that instead of each individual coin being worth more, the coins stay at relatively the same price as before, which happens by automatically distributing more coins to wallet holders. And when the market cap drops, the circulating supply does, too. This means that many coins get burned or destroyed, meaning that instead of the price of the coins dropping, they once again, stay the same.

Elastic supply coins are a relatively new technology in cryptocurrency, and they are still building traction, so they have less support from lenders and loan platforms. However, there are companies that still accept them as collateral. One positive about elastic supply coins is that their algorithmic behavior means that nobody has to worry about the company behind them running out of any reserve. This arguably makes them more robust than stablecoins as it means they can survive financial crises.

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Subsidized vs. Unsubsidized Loans

The topic of student loans is lengthy ground to cover. Among the various facets of these types of loans is the debate between subsidized and unsubsidized. Which one should a student choose? Which one will prove to be more beneficial in the long run?

When choosing a student loan to help you pay for college, the type you decide to take out — whether it be subsidized or unsubsidized — will impact how much you owe after you graduate. Therefore, understanding the differences between the two is important as it will help you determine which is more suitable for you.

Exhibit A: Subsidized

Subsidized loans are specifically for undergraduate students with financial need. It is determined by your attendance cost minus expected family contribution and other types of financial aid. Such examples include scholarships and/or grants. These loans do not accumulate interest during deferment periods or while you are in school half-time at a minimum.

If you qualify for a subsidized loan, they will offer an array of benefits. They provide borrowers with a much lower interest rate than unsubsidized loans typically offer. Moreover, the government pays the interest on them while you are in school. Likewise, during the six-month grace period for repayment after graduation. With that said, subsidized loans are available only to students displaying financial need and they can be used for undergraduate studies.

Exhibit B: Unsubsidized

Unsubsidized loans are for both undergraduate and graduate students. Unlike subsidized loans, they are not based on financial need and are not accompanied by an interest subsidy. These loans accrue interest around the clock, which the borrower has to eventually pay. However, much like subsidized loans, one does not have to start paying off unsubsidized loans until their grace period comes to an end. Only then will interest that has accumulated be capitalized, or added to the principal balance that was originally borrowed.

Unsubsidized loans provide their own share of benefits. As previously mentioned, they can be used for both undergraduate and graduate school. Moreover, there is no qualification requirement for a student to show financial need. While the interest starts accumulating as soon as you take out the loan, it is not mandatory to pay the loans back until you have officially graduated. On top of that, unlike private loans, there are no credit checks when you apply.

Final verdict

Both subsidized and unsubsidized loans have the capacity to help students pay for college. Nevertheless, they must remember that either loan type must eventually be repaid and with interest. One must think long and hard about how much they will need to borrow and which repayment option will work better when it comes to your budget.

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The Influence of Crypto Lending

The practice of lending money has been and continues to be one of the driving forces behind the modern economy. Since debt first became a facilitator for trading, it has been considered a significant component in commerce and investment.

With all this clout, it didn’t take long for the practice to make its way into the crypto market. Since around 2010, the potential establishment of “bitcoin banks” has become a popular topic among numerous forums. Not too long after, people started offering P2P lending services to extract returns on their holdings. This particular space has since evolved to include a wide variety of businesses.

Crypto lending and borrowing have numerous advantages, and these advantages could attract new users. Moreover, it can help expand the ecosystem as a whole.

Attracting banks

One notable change in the crypto sector is that traditional banks may start taking an interest in the system. Rates on fiat loans are at historically low levels, which has led to banks taking note of their lending margins being squeezed. The appealing yield extends to crypto assets, and the ever-growing demand from clients for this service may be enough to convince some institutions to put aside their apprehension and start offering crypto loans and custody.

In December of 2019, the Basel Committee stated that banks could potentially start offering crypto-asset services. Furthermore, there may be a requirement for risk management regulations.

Further DeFi development

Decentralized finance (DeFi) has a huge role in the evolution of the world of finance. For example, DeFi expands the reach of money and its functionality. All a DeFi participant needs is a smartphone, so it is clear that there is potential for global economic growth. Analysts believe that this sector is one of the most significant that is undergoing development in the crypto space.

DeFi will probably continue to be a niche segment for some time. However, this could influence centralized services thanks to a creative utilization of smart contracts. The outcome could be a hybrid of sorts. It could offer centralized assurances with decentralized functionality. To top it all of, a stamp of approval of regulatory management.

Coupled with the yield differential between crypto and traditional assets are the collateral flexibility and general security. All of these factors have the power to draw in more institutional players to the space.

This will do more than boost liquidity in the sector, which in turn could support strong infrastructure expansion, cut down on volatility, and attract more investors. It could trigger asset-specific interest rates that stretch across the sector. As a result, these could add fuel to the development of brand new derivatives (ex. interest rate swaps).

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“Line of Credit Explained”

Oftentimes when people need money, the last thing they consider is seeking a line of credit. However, it is a critical component when applying for a loan.

What is it?

A line of credit (LOC) is a flexible loan issued by a bank or other financial institution. Much like credit cards that offer a limited amount of funds – ones that you can use however and whenever you like – a LOC is a specific amount of money that one can access as needed. They can be repaid either immediately or over a pre-established period of time.

With loans, a line of credit typically charges interest as soon as money is borrowed. Borrowers must receive approval from the bank, with this consent being a byproduct of the borrower’s credit rating. Alternatively – or additionally – their relationship with the bank. It is important to note that the interest rate is, for the most part, variable. This makes it hard to predict what the money you are borrowing will eventually cost you.

Loans vs. LOCs

A loan and line of credit are two methods that individuals and businesses use to borrow from lenders. Loans have a non-revolving credit limit, meaning that the borrower has access only to the amount loaned once. Subsequently, they make principal and interest payments up until the debt is repaid.

A line of credit functions a little differently. The borrower receives a set credit limit – similar to a credit card – and performs regular payments consisting of both a principal and interest portion to pay it off. However, unlike a loan, the borrower has continuous and recurring access to the line of credit during its active period.

Approval for both lines of credit and loans primarily depends on a borrower’s financial history and credit rating. Moreover, their relationship with the lender is an important factor.

Revolving credit: what’s the difference?

Revolving credit and line of credit are both financing strategies. They are available to both individuals and businesses and provide borrowers with a level of flexibility. A lender brings funds – up to a specific credit limit anyway – that can be used and repaid at the borrower’s discretion. Similarities aside, revolving credit and lines of credit are quite different.

Revolving credit is an agreement allowing an account holder to borrow money again and again up to a set dollar limit. At the same time, they pay back a chunk of the current balance due in routine payments. Each payment, minus the fees and interest, restocks the available amount to the account holder.

Put simply, revolving credit remains open until the account’s closure by the borrower or lender. Contrarily, a non-revolving line of credit is a one-time arrangement. As soon as the credit line is paid off, the lender will officially close.

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DEFI IN THE SPOTLIGHT

A few years ago, not a lot of people had heard of, let alone were knowledgeable about, decentralized finance (DeFi). It was only discussed in the crypto space, especially in relation to Bitcoin and blockchain technology. However, COVID-19 would change all that.

DeFi Pulse reported that, since May of last year, the total value locked (TVL) in decentralized finance projects rose an incredible 2,000%. For context, TVL refers to the total amount of assets that are being staked in a specific protocol. This value does not necessarily represent the number of outstanding loans, but rather the amount of underlying supply that an application and/or DeFi is securing.

The concept of an entirely new financial system has been accompanied by the blockchain space from the outset. For years, this has been a dream for the blockchain community, but that may change very soon. This vision of a new financial system has taken many steps closer to coming true.

Changes in a traditional model

Decentralized finance has the potential to leave a huge impact on the way in which banks operate in the future. It even has the capacity to transform the whole structure of the financial system at a macroeconomic level.

The dominant business model of commercial banks is to accept deposits and to give their clients loans. The practice of borrowing and lending is one of several cornerstones of an effective financial system. Through this, fund holders are encouraged to provide liquidity to the markets and, in exchange, they earn a return on assets that would otherwise be unproductive.

DeFi protocols allow for large-scale borrowing or lending of money between unknown participants and without any involvement of intermediaries. These applications unite borrowers and lenders, as well as automatically set interest rates according to supply and demand. On top of that, these protocols are inclusive, permitting anyone to interact with them whenever they want, from wherever they are, and with any amount.

It is not just lending and borrowing practices that are being impacted. There are also investment banks, exchanges, central banks, and insurance companies that DeFi is gradually working its way into. Much like how blockchain technology incorporated its system into various fields, DeFi is doing the same thing in the financial industry.

Future development

For the first time, we are seeing a financial system develop at a large scale without intermediary interference. As is, DeFi applications are unable to compete against traditional finance solutions when it comes to speed, security, and easy-of-use systems. However, DeFi has successfully created working applications that have garnered billions worth of capital. These resources will help further develop more user-friendly – not to mention competitive – applications for years to come.

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Lending Out Coins Could Earn Crypto Owners Interest

If you are looking to earn passive income while holding coins, crypto lending is a worthwhile option.

This is an alternative investment method in which investors lend either fiat money or cryptocurrencies to other borrowers. In exchange, they will receive interest payments. If you consider yourself to be a crypto investor, then crypto lending can offer immediate returns. The best part is that there is no need for you to sell any coins.

To some, this deal may sound too good to be real. Most – if not all – of the best high-yield savings accounts pay considerably less interest, and crypto lending is admittedly a riskier way of holding your savings. It is difficult to guarantee returns when it comes to crypto, so to be safe, there are some things you need to remember.

Different loans and wisely choosing an exchange

It is important to note that not every cryptocurrency exchange allows you to lend out your crypto. No two exchanges are alike, so interest rates tend to vary depending on what the loan type is or what coin you are loaning out.

Generally speaking, exchanges offer two types of loans: fixed and flexible.

Fixed: This type of lending is very similar to a bank CD (certificate of deposit) in that it locks in your deposit at a prearranged rate for an established period of time, usually 7 to 90 days. For not doing anything with your crypto, the reward is a payment of higher interest.

Flexible: This type of lending is a lot like a savings account. You can withdraw your crypto whenever you want to, but the catch is that the return rates are significantly lower.

When it comes to exchanges, knowing that your funds are safe and secure is important. Every exchange follows different guidelines, with the primary one being the Know Your Client/Customer (KYC) rule. This protocol verifies the identities of customers and downsizes criminal activity. Customers residing in the U.S. might be at risk of getting their accounts shut down on exchanges that do not adhere to KYC rules.

Selecting the right coins

Even though there are over 9,000 cryptocurrencies on the market, a majority of exchanges only permit users to lend a fraction of them; a few dozen, give or take. The question that remains is which of these many coins should you lend? Well, that ultimately depends on your risk tolerance, desired returns, and the conditions of the market.

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DeFi Loan Providers and NFTs

With the NFT market currently booming, digital art collectors have been eager to use their works as collateral for loans. NFTs are accepted by both CeFi and DeFi lenders, however the process is very different between the two.

No humans

By far, the biggest difference is that when using your NFT as collateral on a DeFi platform, there are no humans to assess your artwork. DeFi platforms are all automated, meaning that there are no humans running things at any stages. There may be programmers and developers who build the infrastructure, but once the system is set up, they take a backseat and let the system run itself.

This is much less of a problem when using cryptocurrency as collateral on a DeFi platform, because the worth of a crypto can be mathematically calculated, but with art it is different. DeFi lending platforms use algorithms to determine the worth of your assets, meaning that if you use your NFT as collateral via this method, then a machine will be calculating its price. It is hard to believe that a computer can truly understand the significance of a piece of art, and yet this is what DeFi lenders try to convince you of.

Keep in mind that, even if a machine algorithmically made your NFT (such as with CryptoKitties or Cryptopunks) that does not mean the machine truly understands its creation. This is a fallacy that DeFi art lenders try to promote. The best way to demonstrate this is by examining our current philosophical ideas on machine learning and AI.

The American Philosopher, John Searle, spent part of his life proving this very point. In his “Chinese Room” thought experiment, he asked people to imagine somebody locked away in a room. Throughout the day, somebody slips paper through the door with specific Chinese characters on them, prompting him to respond. The person in the room has no understanding of Chinese whatsoever, but as he receives more papers he begins to recognise similar characters, and so he responds by writing those characters on a piece of paper and passing them outside the room. This continues for some time, with people passing him Chinese strings of text, and him passing back other strings of text. He never learns what any character actually means, but he does learn certain patterns from them. This leads people outside the room to conclude that he understands Chinese, but they are obviously wrong.

The man in the room has no comprehension of Chinese. What he has learned to do is understand the syntax of Chinese (or the patterns within the language), but he has no understanding of the semantics (or the meaning behind each character).

Syntax, Semantics, and DeFi

The argument here is that while an algorithm may have created an NFT such as a CryptoKitty, they are only following the rules (or the syntax) of their programming and so they have zero understanding of its value on a deeper level (or its semantics). And if the machine that created the NFT has no idea of its real value, then what chance does a separate machine running on a DeFi lending platform have of understanding its value? Some DeFi platforms use algorithms to assess the worth of works like Cryptokitties and Hashmasks, but all they are doing is looking at the syntax of the art, and trying to assign value to that.

It goes without saying that this means DeFi lenders fully miss the point of NFT artworks. This is why it is best to hand your art over to a CeFi lender, because they can actually use their own judgement to understand the semantics of the art. As sentient beings, we all possess the ability to look at a piece of art and truly feel it, and this ability to feel is necessary for attaching a monetary value to it.

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The Necessity of Customer Service in The Lending Industry

With DeFi being the cutting-edge new field in the financial world, many are flocking over to it under the belief that it is superior to traditional financial tools. And while DeFi does have its advantages, there is one major disadvantage that is often overlooked by newcomers.

DeFi Projects have Extremely Limited Customer Service

Practically every DeFi project has either limited customer service, or no customer service whatsoever. This is not an oversight, it is something that simply comes with the territory. It is not possible for there to be genuine, helpful, human customer service with a DeFi project or platform because all significant activity happens via automation. Smart contracts are handling practically everything, and there are no human operators who are able to step in and intervene, should somebody need their help. In fact, for that to happen would be to defeat the purpose of decentralized finance as a whole.

With this in mind, DeFi is a double-edged sword; on one half it allows for people to have financial autonomy, on the other hand it locks anybody else out from helping with technical issues or difficulties. For some this is a huge problem, as people always make mistakes, and issues always occur on just about any platform. However, on CeFi platforms, people can step in and help, whereas on DeFi, you are left to your own devices, hoping that the problem solves itself.

Customer Service and Lending

Customer service is arguably one of the most important features of any financial tool. When people are dealing with their own money, tensions are often high as money is such an omnipresent and necessary aspect of living. And with loans, tensions are even higher as many choose to lend large quantities, and are in need of borrowing urgently as the vast majority of financial deadlines are time-sensitive.

In situations like this, customer service is deeply important. CeFi crypto lending platforms are centralized, meaning that there are human employees managing the platform at every step of the way. This is extremely important as it allows for robust and in-depth customer service, meaning that somebody can speak to you if any issues occur. This significant feature is something that DeFi is wholly missing. If a DeFi lending platform does have a customer service option, it is deeply limited, with it being unable to help you in any meaningful way, or tell you anything you don’t already know.

Arguably, this is not a problem with DeFi, but rather a feature of it. Nonetheless, when it comes to handling large sums of money, and providing loans in a timely manner, the lack of customer service can leave many feeling lost, confused, and frustrated. Loans are often more urgent than other financial tools because they are so frequently used in time-sensitive situations, and when that happens it means a lot to be able to speak to somebody who can explain what is happening and offer all necessary assistance. With this in mind, CeFI lenders are better suited for most individuals.

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What is Cryptocurrency Lending and is it Right for My Business?

If you’re a regular follower of the news, then you likely have come across more than a few stories about cryptocurrency. This digital-based market is sure to evolve and grow in popularity in the coming months and years and, as a result, you might be wondering if cryptocurrency lending is right for your business needs.

You also might be simply wondering, “What is cryptocurrency lending?”

Unlike traditional stocks, bonds, and mutual funds, cryptocurrency lending offers a number of financing benefits that may appeal to small businesses and startups, including short-term flexibility, low interest rates, and convenience. However, crypto lending platforms also contain elements of risk that are important to understand before you make any sort of digital transaction.

Here, we’ll outline some of the key terms used in the crypto marketplace, and identify how crypto lending differs from traditional financing, including potential pitfalls. If you’re unsure about your options, you may want to consider consulting with an experienced and reliable financing partner like Team Financial Group to learn more about all your financing choices.

Learning Where Crypto Can Take Your Business ​Starts With Understanding the Basics

For all the buzz surrounding crypto, it still can be a confusing world filled with strange names and acronyms. Here’s a quick rundown of common terms that you might come across as you research cryptocurrency lending as a financing option.

Cryptocurrency

A digital or virtual currency (aka “money”) stored, created, and processed by cryptography, making it difficult to counterfeit or duplicate. Crypto assets operate with a decentralized finance structure that allow them to operate outside of many government rules and regulations. Examples include Bitcoin, Ethereum, Dogecoin, Lite coin, and Ripple.

Stable coins

Cryptocurrencies that are backed by more traditional government-issued fiat currencies, such as the U.S. dollar, meaning their prices remain steady. Examples include Tether and Dai.

Digital assets

Digital material and assets that hold some sort of value and are owned by a company. This might include photos, videos, PDFs, logos, illustrations, audio content, even spreadsheets and Microsoft Word documents.

E-lending

E-lending is similar to a traditional mortgage application process. However, lenders are virtual and do not have a physical branch, office, or location. Communication with crypto loan processors and brokers are conducted via email, phone, or online chat.

Blockchain technology

The technology at the center of most digital currencies facilitates the process of recording transactions and tracking assets with a digital ledger of data that can be duplicated and distributed across a business network.

Fintech

Financial technology refers to a financial services company that integrates technology into a product or service in order to improve its functionality and speed up delivery to customers. Fintech examples include lending-as-a-service apps, alternative lending, and crowdfunding.

Smart contracts

A term used to describe computer code that automatically executes an agreement and is stored on a blockchain-based platform. Details of the loan amount, agreement, and repayment terms between borrowers and crypto exchanges are directly written into the code.

Distributed ledger technology

A digital system for recording asset transactions with details and information recorded in multiple places at once. Unlike traditional databases used by banks and financial institutions, a distributed ledger is a decentralized network, meaning there is no conventional data storage or administration functionality.

The Cryptocurrency Landscape Offers Opportunity — But Also Risk

While blockchain lending might seem like an appealing choice for small businesses, there are a number of potential crypto lending risk factors that borrowers should note compared to more traditional financing options.

Unpredictable values: The volatility of the crypto markets makes it more risky than traditional investing. Take bitcoin, for example. At one point in 2017, a single bitcoin was worth almost $20,000. Then, in 2018, bitcoin value dropped to $3,100, wiping out billions of dollars in the cryptocurrency market. Those kinds of losses resulting from price fluctuations can be devastating to small businesses.

Security concerns: Cybersecurity should be a concern for businesses of any size, especially when it comes to cryptocurrency lending. If you do decide to explore crypto loans, it is important that you put procedures in place to protect yourself from fraud, hacks, and other potential cyberattacks.

Lack of regulation: Lawmakers are starting to put more stringent rules and regulations in place at the state and federal levels, so borrowers will need to be prepared to adjust quickly as crypto lending changes.

Technical knowledge: The crypto marketplace also seems to change by the minute, meaning digital tools need to be consistently established, maintained, and updated. This constantly evolving landscape requires an extensive amount of research and vigilance for crypto loans, which may be a challenge for small businesses with limited resources.

Uncertain future: While cryptocurrency lending provides a number of appealing options and choices for businesses looking for financing flexibility, it still remains a relatively new marketplace. There are a lot of unknowns, meaning there are just as many potentials risk as there are rewards. You could say the old saying, “We don’t know what we don’t know,” definitely still applies.

Team Financial Group Makes Equipment Financing Fast, Flexible, and Easy

While cryptocurrency lending may be an intriguing option for small and midsize businesses looking for new ways to foster growth, a financing partner like Team Financial Group offers significant benefits that blockchain lending cannot provide.

We’ve worked with businesses across dozens of industries and provided financing for companies with a wide range of credit scores and histories. As an independent financing partner, we have more flexibility than a bank, so we treat you as more than just a credit score. Instead, we look at the whole picture of your business, your team, and your annual revenue to find a financing option that works for you.

Additionally, if you’re a vendor, here are just some of the reasons why working with Team Financial Group as your financing partner can benefit your business and your customers:

1. We can take a hands-on or hands-off approach, depending on your needs, regarding speaking with your clients.

2. We provide marketing support as well as same-day approvals and funding.

3. We offer the flexibility of working with an independent lender with 20 years of industry experience.

Still have questions about cryptocurrency lending or any of your potential equipment financing options? Let us know. We can help you learn more so you can understand all your options and make an informed choice for your business.

Partner With Team Financial Group for Your Equipment Financing

At Team Financial Group, we work with clients to identify and customize financing solutions that meet their specific needs. Our commercial and office equipment financing options can improve your business’ cash flow and overall financial health.

For More Information: https://heliolending.com/

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The Tax Guide to Crypto Loans

As crypto holders worldwide increase, more people are looking for alternative ways to earn passive income with crypto, while others want to take advantage of crypto-backed loans.

More and more crypto exchanges and products offer crypto loans and interest-earning vehicles, such as Binance, BlockFi, Crypto.com, Celsius, and Nexo. These platforms are not only attractive from an investment point of view but there could also be interesting tax advantages. Today we cover all the tax implications of taking crypto backed loans, but first, let’s explore more about them.

What are Crypto loans?

A crypto loan works similarly to a traditional loan. On one side, you can put your crypto holdings to work by generating interest on locked funds into interest-earning platforms. On the other side, you can use some of your crypto holdings as collateral to borrow cash (e.g., USD) or other cryptocurrencies.

Why take Crypto loans?

Using crypto earning platforms, you can borrow money at an interest rate usually much lower than what you would have to pay to a bank for personal loans while using some of your cryptocurrency as collateral. If you believe in the long-term price potential of Bitcoin or another cryptocurrency, with crypto loans, you do not have to let go of those potential profits to raise cash. As a result, you can keep your crypto for long-term holding, benefiting from long-term capital gains taxes when you sell in the future.

However, there are other implications of taking crypto loans. For example, if the cryptocurrency used as collateral drops in value, the exchange may liquidate some of it to maintain the required loan-to-value (LTV) ratio. You should properly account for these situations while considering taking a crypto-backed loan.

Where can I take a Crypto loan?

There’s an increasing number of tools offering competitive annual percentage rates (APR) when taking crypto loans. For example, BlockFi, one of the leaders in the space, is announcing a 4.5% APR when taking crypto loans with Bitcoin as collateral. On the interest-earning side, BlockFi offers from 5.25% to 8.6% rates, depending on the crypto you have to stake (lock funds), while those higher rates concern deposits with stable coins such as USDC or GUSD.

Competitors such as Crypto offer more cryptocurrencies as options earning higher interest rates (from 8.5% to 14%), especially with stable coins (e.g., Dai, Tether, TUSD, Paxos), and charges 12% interest rate for crypto loans. Nexo offers 8% to 12% interest-earning rates from various cryptocurrencies while announcing a 5.9% APR for crypto-backed loans. Major exchanges like Finance also offer crypto loans while other alternatives such as Celsius are presenting rates, starting at 1% for taking crypto-backed loans. It is worthwhile mentioning that the final interest rates can change slightly from those announced, depending on many personal factors, Crypto/FIAT chosen, etc.

Is borrowing a Crypto loan taxable?

In the US, most cryptocurrency trading creates taxable events. If you have any doubts, check our recently published comprehensive guide on all the tax details when trading crypto. So, how does it work with loans?

In the US, borrowing money is usually not a taxable event. Similarly, lending crypto or FIAT to someone is not a taxable event.

When it comes to a personal loan, the interest you pay for the loan is not tax-deductible unless it qualifies as investment interest. The setting gets complicated when you use the loan proceeds to buy crypto, later sell that coin for a gain or loss. It’s very important to understand the tax implication of each step in the sequence. Let’s look at a detailed example below.

John borrows USDC with Bitcoin as collateral: Crypto loan real-life simulation in steps

Step 1: John buys Bitcoin in 2019

In November 2019, John bought 1 Bitcoin for $8,000. In December 2020 (13 months after), John wants to take a crypto loan, using his Bitcoin as collateral. At that point in time, 1 Bitcoin was $27,000. Let’s recap that buying any crypto with fiat is not a taxable event in the US, and holding it is also not taxable. Furthermore, transferring crypto between wallets is also not a taxable event in case you need to do so for your crypto trading or security reasons.

Step 2: John takes an USDC loan

In December 2020, John took a crypto loan and received $9,000 worth of USDC by using that 1 BTC as collateral. As we’ve seen before, taking a crypto loan is not a taxable event.

Step 3: John wants to trade USDC for Ethereum

Amid Ethereum’s rise in price, John wants to use his new crypto to buy Ethereum and take advantage of its price increase instead of holding a stable coin like USDC.

In January 2021, John used his 9,000 USDC (worth $9,000) for 10 ETH, when each Ethereum was $900. Since USDC is a stable coin, this is treated as if John is using USD to purchase ETH. John’s basis in the 9,000 USDC is $9,000 because he’s on the hook for repaying the USDC to the lender. He gets the cost basis from this liability (i.e., debt basis).

Step 4: John sells his Ethereum for a profit

In March 2021, John sold his 10 ETH for 12,000 USDC, worth $12,000, due to Ethereum’s rise in price. This transaction is taxable, and John will have to pay capital gains taxes on that $3,000 profit, on top of the loan interest.

Since John sold his ETH 12 months before holding it, he will enter a short-term capital gains tax setting, with a tax rate ranging from 10% to 37% in the US. In this simulation, we’re assuming a 35% rate for simplicity purposes, as the real rate will depend on many other factors (e.g., filing status, taxable household income).

As a result, John will pay $1,050 in capital gains taxes from this transaction ($3,000*35% short-term capital gain tax).

Step 5: John repays his crypto loan and pays interest

In this example, John took the loans at a rate of 8%/year, meaning his total interest will be 8% of the total amount loaned for two months. As a result, John will repay his loan of $9,000 and $120 in interest ($9,000 x 8% /12 x 2 months).

After repaying his loans, paying interest, and paying his short-term capital gain taxes, John has a total expense of $1,170 ($1,050 from taxes and $120 from interest).

What was John’s total profit from taking a crypto backed loan?

In reality, John is taking advantage of 2 different sources of profit. Firstly, by taking the loan and having more crypto available to trade for another cryptocurrency, John profited from that trade. His reward was $2,880 after repaying the loan and not accounting for the taxes on the trade.

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LENDING OUT COINS COULD EARN CRYPTO OWNERS INTEREST

If you are looking to earn passive income while holding coins, crypto lending is a worthwhile option.

This is an alternative investment method in which investors lend either fiat money or cryptocurrencies to other borrowers. In exchange, they will receive interest payments. If you consider yourself to be a crypto investor, then crypto lending can offer immediate returns. The best part is that there is no need for you to sell any coins.

To some, this deal may sound too good to be real. Most – if not all – of the best high-yield savings accounts pay considerably less interest, and crypto lending is admittedly a riskier way of holding your savings. It is difficult to guarantee returns when it comes to crypto, so to be safe, there are some things you need to remember.

Different loans and wisely choosing an exchange

It is important to note that not every cryptocurrency exchange allows you to lend out your crypto. No two exchanges are alike, so interest rates tend to vary depending on what the loan type is or what coin you are loaning out.

Generally speaking, exchanges offer two types of loans: fixed and flexible.

Fixed: This type of lending is very similar to a bank CD (certificate of deposit) in that it locks in your deposit at a prearranged rate for an established period of time, usually 7 to 90 days. For not doing anything with your crypto, the reward is a payment of higher interest.

Flexible: This type of lending is a lot like a savings account. You can withdraw your crypto whenever you want to, but the catch is that the return rates are significantly lower.

When it comes to exchanges, knowing that your funds are safe and secure is important. Every exchange follows different guidelines, with the primary one being the Know Your Client/Customer (KYC) rule. This protocol verifies the identities of customers and downsizes criminal activity. Customers residing in the U.S. might be at risk of getting their accounts shut down on exchanges that do not adhere to KYC rules.

Selecting the right coins

Even though there are over 9,000 cryptocurrencies on the market, a majority of exchanges only permit users to lend a fraction of them; a few dozen, give or take. The question that remains is which of these many coins should you lend? Well, that ultimately depends on your risk tolerance, desired returns, and the conditions of the market.

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The Differences Between Proof-of-Work and Proof-of-Stake

Alex Mashinsky, the founder and chief executive of the crypto lending platform, Celsius Network, recently announced a change concerning Dogecoin. He speculates that it will transition from a proof-of-work (PoW) protocol to proof-of-stake (PoS) within the next two years. Switching protocols means different features and abilities for the system.

For those who are not particularly savvy to these protocols, you may be wondering what makes them distinct from one another. On top of that, you want some context for this lending platform’s potential transition.

Proof-of-Work

Proof-of-work refers to a system that needs an insignificant yet feasible amount of effort to avert any malicious or trivial uses of computing power. Examples include sending spam emails or launching various attacks, like denial-of-service (DoS). PoW creates the basis of Bitcoin, as well as many other cryptocurrencies, which enables a consensus that is secure and decentralized.

The best way to look at PoW is by seeing how it functions in relation to the Bitcoin network. This cryptocurrency is underpinned by blockchain technology, which is a distributed ledger that contains a record of all bitcoin transactions. They are arranged in sequential “blocks,” hence the name “blockchain.” This way, users are unable to spend any of their holdings more than once. Prevention of tampering requires the ledger to be public, or “distributed.” An altered version will face rejection by other users.

Users detect any kind of tampering with hashes, which are long strings of numbers serving as PoW. When a given set of data is put through a hash function (SHA-256 is what Bitcoin uses), it will only produce one hash. However, the “avalanche effect” makes it so that even the smallest change to the original data will create a completely unrecognizable hash.

Proof-of-Stake

According to the proof-of-stake concept, a person can mine or validate block transactions based on the number of coins they hold. This means that the more coins a miner owns, the more mining power they possess.

The PoS is an alternative to PoW that aims to tackle inherent issues with the latter. Altcoins primarily use the PoS concept. As soon as a transaction is initiated, the data is fitted into a block with a 1-megabyte capacity before being duplicated across numerous computers or nodes on the network. The nodes are the blockchain’s administrative body and corroborate the legitimacy of each blocks’ transactions.

A large amount of computing power is required for mining to properly operate on different cryptographic calculations. With it, different computational challenges can be unlocked. The computing power translates into an abundance of electricity and power that is essential for the PoW. PoS addresses this by applying mining power to the proportion of coins that the miner is holding. Therefore, rather than utilize energy as a means to solve PoW puzzles, a PoS miner is limited to mining a certain percentage of transactions reflective of their ownership stake.

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What are Liquidity Pools?

With the explosion of DeFi projects comes new ways of managing, handling, and storing money. One method that decentralized tools use to do this is via liquidity pools. These are a revolutionary and deeply significant technology that has allowed for DeFi to flourish over the last few years.

Introduction to Liquidity Pools

Liquidity pools are relatively new tech, being popularised by Uniswap; perhaps the most famous decentralized exchange on the market. Essentially liquidity pools are smart contracts that hold large quantities of funds within one location, that allow traders or borrowers to take from that pool. They help decentralized exchanges and loan providers to connect individuals with the money they are looking to work with.

People hand their coins and tokens over to liquidity pools in exchange for an incentive of some sort (with different projects offering different incentives). These funds are then used to help make trades or issue loans. The money people hand is not exactly lost, because a fully functioning liquidity pool should never run out of its funds, and so the people giving their money over should be able to take their money out in the future.

Liquidity pools were developed as a way of helping to bootstrap DeFi lending and trading platforms in their early stages; when DeFi was in its infancy, there were few people using them because they were new and untested. This meant that if traditional order books were used then people would have to wait hours, or even days, for their trades to be matched with another person. However, liquidity pools eradicate this issue because rather than being matched with another person, users are instead matched with the project itself, which is always ready to issue a loan or make a trade because it always connects to the liquidity pool. These are known as automated market makers (AMM)

What are AMMs?

An AMM is a machine or program that matches with every trader or borrower. They automatically match each person with the best offer for the token or coin they are about to engage with. They are the ultimate alternative to the traditional order book, because AMMs are always available and can be used by multiple people, so they are perfect for newer projects that might have a low user-count.

AMMs use algorithmic principles to adjust their prices in accordance with the standards of the market at large, meaning that competitive rates are consistently offered. For the end user, there is no noticeable difference between engaging with an automated market maker and a real human.

Downsides of Liquidity Pools

Liquidity pools and automated market makers are necessary inventions within the DeFi market, but like all DeFi inventions, they are not always stress-tested or foolproof. One of the biggest downsides of using a project that has a liquidity pool is that the pool can get hacked. It is rare, but as DeFi is all based around programming (rather than human intervention) it is entirely possible for somebody to break into a liquidity pool and deplete it. Generally, this will not cause issues with the end user, so long as they are borrowing or trading, and not holding their money in the pool. In these circumstances, all that would happen is that the pool would close down.

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Why you have to collect a Crypto loan in 2021

Do you have a lot of bitcoin in your wallet, and are you thinking of selling your coins to solve a need or invest in your business? I’ve got good news for you.

When you need liquidity, there’s no need to sell your coins; Crypto loans are a better option, and I will show you exactly why. Recently, crypto loans have become more and more common.

These forms of loans make the procedure of borrowing capital much simpler than standard approaches.

The notion of crypto loans sounds dangerous for certain individuals and as if it’s too good to be real.

We want these concerns to be dispelled and let you know that crypto loans live up to the hype.

Reasons for a crypto loan:

To Invest in your business.

The most obvious reason for considering a small business loan is probably to invest in an opportunity for your company to expand. Continuing to grow your company when business is booming can help ensure that your profits do not plateau or shrink.

To avoid selling your crypto.

Some of us have spent years of labor and expertise gathering crypto, and you wouldn’t want to sell them off just because you are in dare need of cash.

Why sell when you can borrow?

If you believe in the long-term growth of your crypto, you should know that investing against it is more valuable than selling it. Because without abandoning your investments and their ability to rise in interest, you will access the value of your investment.

Meanwhile, Crypto loan interest rates are so tiny that individuals are stunned! Imagine where you’re getting cash and remain the owner of your coins. That is to say; your coins become the loan collateral. That is possible because of the Blockchain business model.

Why Crypto loans?

They are readily available.

If you have ever applied for a standard loan, you should probably know how long the procedure takes. Your credit report would be a big factor in deciding how much money you are eligible to borrow for regular loans.

If you have a poor credit score, likely, you will not get the funds you need. Some more variables are going to be taken into accounts, such as wages and credit records.

Crypto loans are readily available to whosoever that have crypto. Irrespective of their wages and credit scores. With applications like Smart credit, you can get real finance for your needs.

No need for fixed asset collaterals

Your crypto income is enough to obtain a crypto loan. No need for a house, land, or any fixed asset anywhere to serve as your collateral. Smartcredit needs your Bitcoin, Etherum, etc., as collateral to get you real cash.

Instant fund transfer

Some regular loan firms make you wait weeks. While some banks are accelerating their processes, many are still not. If you need a loan as soon as possible, Crypto Lending is a better choice.

In Crypto lending, within a short time, several platforms like Smartcredit will accept the loan. No hassles, just your Crypto and ID. As soon as you are approved, Crypto loans are converted, so you can quickly satisfy your real financial needs.

Save your tax

Most countries don’t tax your digital currencies. Hence you can lend or borrow crypto in smart credit without worrying about taxes. Meanwhile, if you chose to sell them, the likes of a DEX can tax you.

Multiplying Your Crypto

Here is what many crypto income owners don’t know. Now that the crypto market is rapidly growing, especially Bitcoin. You can use your Bitcoin to get loaned in US Dollars at very low interest. Buy more Bitcoin using that cash. When the price increases, you make extra gains. You can replicate that again and again.

You can earn interest too.

Smart credit financial services can lend out your liquidity. The crypto fixed income system, allows you to earn interests by funding a crypto loan. Meanwhile, Crypto market interests are usually higher than bank interests.

Final Thoughts

You’ve seen why getting a crypto loan is better than just selling your crypto and eating up the profits.

Finally, Crypto loans are a stable, reliable, and quick alternative to conventional bank loans.

But be sure to consider selecting a trusted crypto lending platform for your crypto loan needs.

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Fixed vs. Variable Interest Rate Loans

If you are thinking about applying for a loan, you must understand the differences between fixed interest rates and variable interest rates. Whatever the reason you need this loan, understanding the differences between variable and fixed interest rates can help you save on money and achieve your financial goals.

Exhibit A: Fixed

‘Fixed’ interest rate loans are loans where the interest rate charged will remain fixed throughout that loan’s term. It makes no difference what market interest rates do either. This will lead to your payments being the same during the whole term. Whether this type of loan suits you largely depends on the interest rate environment when the loan is taken out. Moreover, it depends on the loan’s duration.

When a loan is fixed for its term, it stays at the current market interest rate, with or without a spread that is distinct to the borrower. For the most part, if interest rates are low, but will soon increase, then locking in your loan at that fixed rate is the best route to take.

Many homeowners go with the fixed rate option because they can prepare and budget for their payments. This is particularly handy for consumers with finances that are stable, yet tight. For them, it provides protection against potential rising interest rates that in turn could increase their loan’s cost.

Exhibit B: Variable

A ‘variable’ interest rate loan is where the interest rate charged on the outstanding balance varies with the changes in the market interest rates. The interest charged on this specific type of interest rate loan is connected to an underlying benchmark or index, like the federal funds rate.

Consequently, your payments will also vary so long as your payments are integrated with principal and interest. Variable interest rates can be found in credit cards, personal loans, mortgages, derivatives, and corporate bonds.

Generally speaking, variable rate loans have lower interest rates than their fixed counterparts. This mostly because they are a riskier choice in the eyes of consumers. Rising interest rates have the capacity to boost the borrowing cost, and consumers choosing variable rate loans need to be aware of the possibility of increased loan costs. For consumers who are in a good enough position to take the risk, or who aim to quickly pay off their loan, variable rate loans are the way to go.

Which one should I choose?

As simplistic as this discussion is, the explanation will not change one bit in a comparatively more complex situation. Studies show that, over time, the borrower is more likely to pay less interest as a whole with a variable rate loan in comparison to a fixed-rate loan.

Be that as it may, trends of the past aren’t exactly indicative of performances in the future. The borrower needs to take the amortization period of a loan into consideration. This is the total length of time it takes for a loan to be paid off. The longer a loan’s amortization period is, the greater the effect an alteration in interest rates will have on your payments.

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CONSEQUENCES OF LOAN DEFAULTS

Consequences of Loan Defaults”

To “default” is to fail at repaying a debt – including principal or interest – on either a loan or security. They usually happen when a borrower cannot make payments on time, they regularly miss payments, or they avoid making payments. Alternatively, they stop altogether. As one might expect, there are consequences for such an act.

Credit damage

Falling into default will mean that your credit will suffer greatly. Your credit score consists of numerous factors, but the most critical is your payment history. This includes your current position with outstanding accounts, credit cards, loans, or other lines of credit. Having a bad credit score will obviously negatively affect you in various ways. It can make it harder to rent or buy a house and get a job, among other tasks. Even if you get the approval for a loan, a poor credit score can make it more pricey.

Some lenders will report delinquencies if you are late paying a bill. During the first 30 days after a due payment, you might be okay. However, missed payments resulting in default will be reported to credit bureaus, which in turn will lower your credit scores.

Legal problems

When all else fails, lenders will send any unpaid debts to collection agencies. Collections can negatively impact your credit and provoke legal judgments, not to mention be quite expensive. In some cases, debt collectors can be an annoyance to deal with.

Defaulting is considered to be a civil crime, not a criminal crime. Therefore, arresting defaulters isn’t something that the police do. That being said, the defaulters are accountable for paying off the debts. When it comes to court judgment, lenders could potentially garnish your wages or even go so far as to seize your bank account’s assets.

An increase in costs

Defaulting can boost your debt amount. Not only that but various things may be added to your account, thus increasing the total balance. Such things that could be added include late payment fees, penalties, and legal costs.

In actuality, taking the effects of compound interest into account, outstanding debt increases rather quickly. By missing payments, the charges of your monthly interest are added to the principal balance of the loan. From this, future interest is charged on this greater balance, and so on. As you can probably tell, this can snowball very quickly.

What to remember

As you can see, the consequences of loan defaults of any type are harsh and one should avoid them at all costs. The best thing to do if you miss a payment or your loan remains in delinquency for just a few months is to contact the company responsible for managing your loan. Loan servicers will often collaborate with debtors to create a payment plan that both parties can benefit from. Otherwise, in the worst-case scenarios, leaving a loan in delinquency and causing it to default can result in your assets or wages being seized.

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Why is the Crypto Market so Volatile?

It is often said that the crypto market is more unstable, temperamental, and turbulent than other financial markets. This can be both a good and a bad thing, as the crypto market has successfully made plenty of people richer in a relatively small period of time, but it has also caused a lot of people to lose money faster than they would in other markets such as stocks for FOREX. Here are three major reasons why there is such volatility in the crypto market.

Crypto is a new asset class

Compared to other markets, such as stocks, commodities, and fiat, crypto is extremely young. Most other markets have been traded and engaged with for centuries, whereas crypto only existed in 2008 with Bitcoin, and for the most part of crypto’s history, there were only a handful of coins to invest in. It has only been in the last five or so years that there has been such a large plurality of coins and tokens to trade.

The lack of age and experience in the crypto market means that most technical analysis does not work, as there is simply not enough historical data for it to be accurate. This makes for volatility, as only a small handful of traders will try to perform technical analysis right now, and even then there is less chance it will be as successful as with an asset class such as commodities (where we have a vast wealth of knowledge about how it acts as a market).

The crypto markets do not close

Most financial markets have opening and closing times. For instance, most trading does not occur over the weekend, or after 5pm (depending on the country you are in), because the world of trading is usually seen as a 9-to-5 job. In many ways, this shows the sheer age of other markets, as most of them existed before the internet did, and so 24/7 trading was never viable. With that being said, there are still ways to trade traditional assets during weekends and non-work hours, although these trades usually have less liquidity, and so many investors avoid doing so.

The crypto market, however, has no closing times. Everybody is trading on all days, at all hours. The fact that there is no stopping crypto trading means that it becomes more unpredictable, and so it is harder to follow. With traditional markets, a trader can be confident that less value will move after office hours, but with crypto anything goes as liquidity does not disappear on weekends or after hours.

More retail investors

Crypto might be the most open and accessible asset class in the world. People can begin trading instantly and (although it does help) they do not need any knowledge of finance or economics to begin engaging with the market. Additionally, because of the youth of the market, and because of how many people got rich by merely holding onto coins for long enough, there is a lot of money in the market from people who do not have a great deal of trading experience. There are also a ton of crypto traders who are in the market because they know about the technology, rather than know about the economics of it, so the market will not always move in the same way as a market would if it was filled with trained economists (like how FOREX and stocks are).

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