How to get a loan in ETH: a complete guide
Is it possible not to give a loan and what is the health index
What you need to know about DeFi betting
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The market for decentralized finance is rapidly evolving, offering users a variety of services, from asset management to profitable farming. But how accessible are these services for ordinary people without special training in finance and computer technology? The editors of BeInCrypto decided to find out from personal experience..
Originally DeFi projectsDecentralized finance (DeFi) is financial services built on blockchain technology that offer users access to an open, efficient and … More offering retail users and businesses loans in cryptocurrency. They were supposed to become an alternative for those who, for one reason or another, do not have access to banking services. We decided to check how easy it really is to take out a loan in digital coins, on what terms and how it all happens. For the experiment, the Aave platform was chosen, which is one of the most popular, and also issues crypto loans, including for the purchase of real estate.
Step 1. Study the market
Indeed, the Aave platform is ready to issue loans in various cryptocurrencies, including Dai, USDC, TrueUSD, BUSB and others. The size of the deposit and the interest rate on the loan will depend on the chosen coin. For example, for ETH, the deposit will be 1.10%, and the annual interest rate is 3.19% (floating) or 6.99% (fixed).
Step 2. Understanding the rates
Aave offers two types of bets: fixed and variable. What is the difference?
Fixed rates do not change over a short time frame, but if market conditions change sharply, they too can be adjusted. This option is convenient to use to schedule payments.
Floating rates vary based on supply and demand for Aave. It can vary and become more or less beneficial for the borrower.
Users can change the type of their bet at any time through their personal account.
Step 3. Choose a wallet
If you have a cryptocurrency wallet, you can link it directly to the Aave platform. It supports multiple crypto wallets including Ledger, Coinbase, Wallet Connect and more. But if there is no wallet, you can start without it..
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I didn’t have a wallet, so I chose the “Continue without wallet” function and went to a page where we were asked to choose a market: Aave or Uniswap. The markets need to be dealt with, so I left Aave, it was specified by default. They promise that in the future it can be changed.
Next, we have a list of tokens that can be deposited or borrowed.
Step 4. Choosing a coin
This is where it turns out that the wallet is still needed. Without it, nothing is available in your personal account, but you can see the lending conditions for a specific coin. We chose ETH and eam offered a loan in ETH with a fixed rate of 7% and a floating rate of 3.2%.
Step 5. Connect the wallet
I go back to connecting the wallet. To do this, I press the “Connect” button (see the screen above) and I am thrown back to the wallet selection page. I liked MEW, but there were problems behind the cute name..
It turned out that the browser wallet must necessarily be linked to the mobile wallet, otherwise you will fail. I had to go to Apple AppStore and download MEW wallet.
Further it gets worse. After reading the QR code using the phone camera, the wallet opens on the smartphone itself, and not on the browser. I tried it several times, but it never worked. And it took quite some time. In the end, I decided to continue working in the mobile version of the wallet, since the browser could not be integrated.
Step 6. Top up the ETH wallet
Finally I figured out the wallet. Now you need to put any amount in ETH on it and it should be automatically displayed in the platform’s personal account, because the wallet is already connected to Aave. We deposit money in the standard way: we buy with a card or send from another wallet.
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Step 7. The money was credited to the profile on Aave
After replenishing the wallet, the money was automatically credited to the account and displayed in the personal account.
Step 8. Take a loan
To take a loan, select the Borrow function on the main page or directly in your account.
After clicking on the Borrow button, a page of your personal account opens, where you can view the lending conditions: the total available volume of coins, interest rate, coin value in real time, and more. We indicate the amount that we need, and you’re done! Coins will go directly to the wallet associated with Aave.
What to look for:
- The health factor is a numerical representation of the reliability of your deposited assets in relation to the borrowed assets and their underlying value. The higher the value, the safer the state of your funds from the liquidation scenario. If the health coefficient reaches 1, the liquidation of your deposits will begin. The health factor depends on the liquidation threshold of your collateral versus the value of your borrowed funds.
- Loan repayment. There is no fixed period for repayment of the loan. As long as the position is safe, you can take out a loan for an indefinite period. However, over time, the accrued interest will rise, leading to a decrease in the health factor, which may result in the assets deposited being more likely to be liquidated..
What are the difficulties
In principle, there is nothing difficult about DeFi loans. Even a beginner can get a loan. Difficulties may arise at the stage of integration, so it is better to use a mobile phone right away and save time on integration with the platform. In general, the Aave interface is intuitive, so it can practically cope with a loan.
Who is a loan in tokens suitable for?
Newbie users always ask themselves the question: “Why, in fact, take a loan from DeFi, if you can go the traditional way and get a loan from the bank.” But what to do if the bank does not give a loan or gives at huge interest rates, or even refuses a loan due to bad credit history. This is where decentralized finance can be a real blessing. So, why take out a loan on decentralized financial platforms:
- you can get any amount for a long period;
- annual rates are several times lower than in banks;
- no need to collect income certificates, tax returns and other documents;
- no need to provide a passport, TIN and other documents that contain personal information;
- everyone receives a loan, and the loan amount directly depends on the deposit made by the borrower;
- money comes about instantly. No need to wait a week for the application and its approval;
- there is no collateral in the form of property. You risk only those coins that are stored in your wallet;
- DeFi has no borders, so it is ideal for countries with inefficient banking systems;
- a wide selection of coins in which you can borrow;
Now about the cons
- the loan and deposit can be liquidated if the price of the coin collapses;
- the cryptocurrency market remains volatile, so it is not possible to fully calculate the annual rate if you take out a loan with a fixed rate;
- obtaining a loan requires some skills, since you yourself fill out and approve the application;
- there is always a risk of breaking the protocol and withdrawing all funds.
All information contained on our website is published in good faith and objectivity, and for informational purposes only. The reader is solely responsible for any actions he takes based on the information received on our website..
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