An Ethereum loan, also known as a decentralized finance (DeFi) loan, represents a borrowing arrangement performed on the Ethereum network. With its help, users can borrow digital assets on a peer-to-peer basis by pledging other assets as collateral.
What makes it different from a traditional loan is the lack of a centralized party that governs the whole procedure.
Ethereum loans rely on smart contracts that ensure that the loan will be paid off in a fully automated and transparent manner. Thus, they eliminate any need for a third party such as a bank to ensure the security of the deal. Also, they reduce the paperwork and make the process of getting a loan much easier.
How do Ethereum loans work and what are the best platforms that provide such services? Read on to find out.
Top Ethereum Loan Platforms
| Name | Score | Visit | Disclaimer | |
|---|---|---|---|---|
 | 9.1 | Visitbinance.com | ||
 | 2Nexo | 7.0 | Visitnexo.com | |
 | 7.3 | Visityouhodler.com | ||
 | 4Aave | 6.5 | Visitaave.com | |
 | 7.0 | Visitcompound.finance |
What is an Ethereum Loan?
In broad terms, an Ethereum loan is a type of secured loan where you pledge some digital assets as collateral. In exchange, you borrow ethers or other cryptocurrencies from a lender and pay interest for using these funds.
Similarly, it is possible to pledge ethers as well in exchange for other cryptocurrencies. It all depends on your requirements and the reasons why you may need these assets in the first place.
With that said, Ethereum loans come with the following common use cases:
Liquidity. Ethereum loans make it possible to get access to highly liquid assets without having to sell your crypto holdings.
Leveraged trading. Crypto traders may enhance their trading activities with ETH loans. By collateralizing their digital assets, they may borrow more crypto and thus amplify their trading positions and potentially increase profits.
Diversification. Investors can diversify their portfolios by using their crypto holdings as collateral and gaining access to other assets.
Short-term financing. Ethereum loans enable businesses and individuals to bridge the gaps between their immediate funding requirements and the availability of funds.
All-in-all, Ethereum loans represent a viable alternative to TradFi funding methods in the world of digital currencies.
How Do Ethereum Loans Work?
Now let’s take a closer look at the actual mechanics of how Ethereum loans work. Here’s a step-by-step guide on how you can obtain it:
Research lending platforms. You can refer to the comparison table provided below in this article or look out further into the market.
Create an account. Having selected a preferred lender, get yourself a verified account on this platform. If it is a decentralized platform, logging in via your personal wallet address is usually enough. If it is a centralized exchange, you may also need to submit some personal documents to verify your identity.
Check the loan terms. Make sure that you borrow only as much as you can repay. Study the maximum loan-to-value (LTV) ratio of the given offer. This index shows how much you can borrow with respect to the value of assets you deposit. Also, pay attention to such details as the crypto interest rate, the loan period, the frequency of repayment terms, and how long you can keep the loan if the value of your collateral drops.
Deposit collateral. Transfer the collateral from your personal wallet to the address provided by the platform. Keep in mind that pledging volatile cryptos such as ETH or BTC is pretty risky. Consider using stable assets such as USDT or USDC instead.
Monitor your balance. If the value of your collateral drops beneath a defined level your position may get liquidated and you may bear losses. To avoid this situation, keep a close eye on your balance and top-up additional amounts to make sure that the loan is paid back in time.
Pay back the loan. Once you don’t need the borrowed crypto anymore, send it back to the lender together with the accrued interest.
What Effect Does Loan-to-Value Have on Loan Rates?
The loan-to-value (LTV) mentioned above is a very important aspect that may have a significant influence on the final sum you get. This index reflects the ratio between the amount you borrow and the value of your collateral.
Since the collateral serves as a security against your inability to pay back the loan, LTV is sensitive to the collateral’s value. If the value of the pledged assets drops, your position may get liquidated automatically to cover your loan.
Margin Calls
A margin call is another important term that you should be aware of when taking out an Ethereum loan. It happens when the LTV of your loan gets dangerously close to the liquidation level.
In such a situation, a lender may ask you to either pay back a part of your loan or add some more collateral on top of what you have already pledged. Thus, margin calls serve as a warning to borrowers helping them to avoid liquidation at unprofitable terms.
Ethereum Loan Without Collateral
As mentioned earlier, Ethereum loans typically require collateral that helps to protect lenders from borrowers’ insolvency. Since there is no third party to ensure the security of the deal, the collateral is a crucial part of the whole process.
Yet, it is also possible to get a loan without pledging any assets. This option is only available to whitelisted institutional investors, though. It means that they have to be thoroughly checked and approved by lenders in order to get funding. Platforms such as Centrifuge and Goldfinch Finance offer such types of loans.
What is an Ethereum Flash Loan?
An Ethereum flash loan is another way of getting a crypto loan without collateral. Borrowers take loans and return them in a few seconds so that both transactions get recorded on the blockchain within a single batch.
Such loans can be useful to arbitrage traders who make money on the difference in asset prices on different platforms.
Best Ethereum Loan Platforms: Reviewed
Below, we have listed our pick of the best Ethereum loan platforms. The list includes centralized as well as decentralized solutions.
1. Binance - Best for Novices
| Accepted collaterals for borrowing ETH | 60+ cryptos |
| Assets that can be borrowed against ETH | 100+ cryptos |
| Max LTV | 65% |
| Loan size limits | Variable depending on the loanable coin; from 100 to 5,000,000 in USD for ETH loans |
| Interest rate | 1.68% to 2.86% |
| Fees | 2% |
| Loan types | Flexible, stable |
Binance is the largest centralized exchange for buying Ethereum and other cryptocurrencies. The platform has developed a comprehensive ecosystem of products and services providing users with a wide range of functionalities.
With a verified Binance account, you can easily access such services as buying and selling crypto, mining, saving, lending, and borrowing cryptocurrencies.
The Binance Loans feature stands out due to the huge range of coins offered and the low interest rates available to borrowers. Net interest rates are lower still as crypto collateral earns crypto rewards through Simple Earn.
- Borrowing options for over 100 cryptocurrencies
- Flexible loan terms
- Security and reliability
- Broad geographical coverage
- Collateral may be rehypothecated
- Borrowing is not available for Binance.US users
2. Nexo - Best for Low-Rate Loans
| Accepted collaterals for borrowing ETH | 60+, including BTC, ETH, BNB, DAI, and others |
| Assets that can be borrowed against ETH | 40+ cryptos |
| Max LTV | 15% - 90% |
| Loan size limits | From 50 to 2 million USD |
| Interest rate | 0% - 13.9% |
| Fees | 4% - 8% |
| Loan types | Custom repayment schedules |
Nexo is a lending platform that enables users to borrow against their cryptocurrency holdings. The service allows using crypto assets as collateral to secure instant loans in various fiat currencies or stablecoins. It offers competitive interest rates, flexible loan terms, and a seamless borrowing experience.
Nexo also provides options for earning interest on your deposited cryptocurrencies, allowing you to earn passive income on your holdings. Additionally, it offers such features as instant loan approvals, no minimum loan repayments, and the ability to repay your loan using crypto or fiat. All-in-all, Nexo provides a user-friendly and efficient lending solution for cryptocurrency holders.
- The support of 40+ cryptocurrencies for borrowing and 60+ cryptocurrencies for collateral
- Approval within a day
- Borrowing range from $50 to $2,000,000 in ETH
- 0% APR for Gold or Platinum members
- Rates depend on loyalty and loan-to-value ratio but rarely exceed 13.9%.
- The minimum deposit is 100 USD
- The returns are lower compared to other exchanges
3. YouHolder - Best for Fast and Easy ETH Loans
| Accepted collaterals for borrowing ETH | USD, EUR, GBP, CHF, BTC and stablecoins |
| Assets that can be borrowed against ETH | USD, EUR, GBP, CHF, BTC and stablecoins |
| Max LTV | 50% - 90% |
| Loan size limits | At least 100 USD |
| Interest rate | From 3% to 26% |
| Fees | 4.08% |
| Loan types | 15-day, 30-day, and 6-month loans |
YouHodler offers instant crypto loans secured by your crypto holdings. It offers immediate access to funds without the need to sell your crypto assets. What makes YouHodler stand out is the seamless and hassle-free loan application process, with no credit checks or extensive paperwork required.
Whether you prefer fiat, stablecoin, or crypto, YouHodler provides flexible options for loan disbursement. It allows withdrawing funds to a preferred credit card, bank account, or cryptocurrency exchange.
With YouHolder, loan amounts start from $100 and can be repaid in one year. Managing your loan is made easy through advanced features such as adjustable loan-to-value (LTV) ratios and customizable price limits to prevent margin calls. The platform makes accessing instant crypto loans convenient and tailors them to the individual needs of its users.
- Innovative platform with fast and effortless ETH loans
- High loan-to-value (LTV) ratio of up to 90%
- 40+ cryptocurrencies supported as collateral
- No credit check is required
- Not available in the US
- Relatively high APRs on loans
- The lack of transparency
4. Aave - Best for the Highest LTV Ratio
| Accepted collaterals for borrowing ETH | WETH, WBTC, AMPLE, BUSD, DAI, USDT, USDC, etc. |
| Assets that can be borrowed against ETH | 100+ cryptos across 7 blockchains, with 15 cryptos on each network on average |
| Max LTV | 80% |
| Loan size limits | Depends on the credit score and financial profile |
| Interest rate | Depends on the availability of capital within a given pool |
| Fees | 5% liquidation penalty |
| Loan types | 100+ cryptos across 7 blockchains, with 15 cryptos on each network on average |
AAVE is a decentralized finance (DeFi) protocol built on the Ethereum blockchain. It serves as a lending and borrowing platform, allowing users to lend out their cryptocurrency assets and borrow funds using those assets as collateral. AAVE operates through smart contracts which enable automated and trustless transactions.
AAVE features overcollateralization. It implies that borrowers have to deposit more collateral than the borrowed amount. This reduces the risk for lenders and helps maintain the stability of the platform.
Also, AAVE supports a wide range of cryptocurrencies, providing users with flexibility in their borrowing and lending options.
- 80% loan-to-value (LTV) ratio for borrowing ETH
- Flash loans with no collateral required and a fee of 0.09%
- Low transaction costs
- A large pool of cryptos
- Instant loans
- Versatile services for users
- Access to numerous networks
- The liquidation penalty can reach 10%
- Over-collateralization policy
5. Compound - Best for High Interest rates
| Accepted collaterals for borrowing ETH | WBTC, ETH, YFI, DAI, etc. |
| Assets that can be borrowed against ETH | WBTC, ETH, YFI, DAI, etc. |
| Max LTV | 50% - 70% |
| Loan size limits | The maximum amount is limited by the collateral value of the assets supplied. |
| Interest rate | Variable |
| Fees | 0.09% |
| Loan types | Crypto loans and borrowing |
Compound has a reputation as a highly innovative DeFi platform with a secure lending and borrowing mechanism.
The platform presents a leading protocol for supplying cryptocurrency assets as collateral and borrowing the base asset. It enables users to earn interest on their idle assets and access borrowing services in a decentralized and efficient manner.
With Compound, users can deposit their cryptocurrencies as collateral and borrow other supported assets against that collateral. The collateral provided must be overcollateralized, meaning borrowers have to lock up more assets than the borrowed amount. This reduces the risk for lenders and helps maintain the stability of the platform.
- 17 cryptocurrencies supported
- Assets locked in the system are tokenized using cTokens compatible with Ethereum
- Reliability
- No limits on borrowing and lending amounts
- No trading fees and slippage
- Not beginner-friendly
- Limited number of available tokens
Comparison of Ethereum Loan Platforms
| Binance | Nexo | YouHolder | Aave | Compound | |
| Accepted collaterals for borrowing ETH | 60+ cryptos including BTC, ETH, DAI, SOL, etc. | 60+ cryptos, such as BTC, ETH, BNB, DAI, and others | USD, EUR, GBP, CHF, BTC, and stablecoins | WETH, WBTC, AMPLE, BUSD, DAI, USDT, USDC, etc. | WBTC, ETH, YFI, DAI, etc. |
| Assets that can be borrowed against ETH | 100+ cryptos including BTC, ETH, DAI, SOL, etc. | 40+ cryptos | USD, EUR, GBP, CHF, BTC, and stablecoins | Numerous cryptos across 7 blockchains including WETH, WBTC, AMPLE, BUSD, DAI, USDT, USDC, etc. | WBTC, ETH, YFI, DAI, etc. |
| Max LTV | Up to 65% | 15% - 90% | 50% - 90% | 80% | 50% - 70% |
| Loan size limits | Variable depending on the loanable coin. As for ETH, up to 5,000,000 in USD | From 50 to 2 million USD | The site mentions minimum loan amount only, which is 100 USD | Depends on the credit score and financial profile | The maximum amount is limited by the collateral value of the assets supplied. |
| Interest rate | Variable | 0% - 13.9% | 3% - 26% | Depends on the availability of capital within a given pool | Variable |
How To Get an Ethereum Loan
Below, we will give a step-by-step guide on how to get an Ethereum loan on Binance.
Go to the “Crypto Loans” page.
Choose the currency and the loan type
Specify the loan details
Review the details and finalize the deal
Is It Safe To Get An Ethereum Loan?
Ethereum loans come with various risks and negative aspects. This is especially relevant for DeFi platforms. Here are several examples of the most widespread drawbacks:
Liquidations - If the value of your collateral drops considerably or breaches a predetermined threshold (LTV), the platform may liquidate your collateral to recover the loaned funds. When the crypto market is particularly volatile, rapid price fluctuations can lead to sudden liquidations and eventually losses.
Margin calls - These occur when the value of the collateral approaches or falls below the required collateralization ratio. If this happens, the platform may require adding more collateral or repaying a portion of the loan to restore the required ratio. Failure to meet margin calls can result in liquidation or penalties.
Security vulnerabilities and hacks - DeFi platforms are vulnerable to hacks and security breaches. If a platform is compromised, attackers may gain unauthorized access to users’ funds and steal them.
Price volatility and changes in LTV - Cryptocurrencies are known for high volatility. Sudden price swings can affect the value of your collateral and trigger liquidations or margin calls. Moreover, DeFi platforms may have their own mechanisms that allow them to adjust the LTV ratio, which can impact your collateral requirements and loan status.
Rehypothecation - This refers to the practice of platforms using the collateral provided by users for other purposes, such as lending it out to other borrowers. While this can generate additional income for the platform, it can also increase the counterparty risk and impact the availability of your collateral.
Platform bankruptcy - Both DeFi platforms and CEXes are subject to operational risks and economic uncertainties. In the event of platform bankruptcy, insolvency, or closure, there is a risk of losing access to your collateral or facing challenges in recovering your funds.
The list of risks mentioned is not exhaustive, and there may be other risks associated with specific platforms or the overall DeFi ecosystem. Remember to always do your own research before entrusting your digital assets to any third party.
What To Consider When Choosing an Ethereum Loan Provider
It is crucial to keep in mind several factors to ensure you select the right Ethereum loan provider. Pay attention to the following factors when selecting a platform:
Availability in your jurisdiction. Check whether the platform operates in your region, as some platforms may have restrictions or may not be available in certain areas.
Collateral options. Determine what types of assets you can use as collateral for the loan. Some platforms may accept only Ethereum (ETH), while others may allow other cryptocurrencies or even non-crypto collateral.
Interest rates. Compare the interest rates offered by different platforms. Lower interest rates can help reduce borrowing costs. Exceptionally low rates should make you cautious, though, as they may come with hidden fees or risks.
Fees. Take into account the fees associated with the loan. Common fees include origination fees, transaction fees, withdrawal fees, and early repayment fees. Ensure you understand the fee structure and evaluate its impact on the overall cost of the loan.
Loan-to-value ratio. Check the platform's LTV ratio, which determines the amount of collateral required relative to the loan amount. A lower LTV ratio generally provides more borrowing power, but it may also mean a higher collateral requirement.
Loan terms. Review the terms of the loan, including the loan duration, repayment schedule, and any potential penalties or restrictions. Consider whether the terms align with your financial goals and repayment capabilities.
Security measures. Assess the platform's security measures, such as two-factor authentication, cold storage for users’ funds, smart contract audits, and insurance coverage. Strong security protocols can help safeguard your assets and protect against potential hacks or breaches.
Reputation and track record. Research the platform's reputation and track record in the industry. Look for user reviews, community feedback, and the platform's history of operation. A platform with a reliable and trustworthy reputation is generally a safer choice.
User experience and platform features. Consider the platform's user interface, ease of use, and available features. Look for additional tools or services that may enhance your loan experience, such as loan calculators, automatic renewals, or flexible repayment options.
Regulatory compliance. Understand the platform's compliance with relevant regulations and legal requirements. Operating within regulatory frameworks can provide additional assurances and protection for users.
Considering these factors, you can make a more informed decision when selecting an Ethereum loan provider that aligns with your requirements and offers a secure and suitable borrowing experience.
Pros and Cons of Ethereum Loans
Ethereum loans have gained popularity as a means of accessing liquidity and leveraging cryptocurrency holdings. While these loans offer certain advantages, it's important to carefully consider the pros and cons before engaging in this type of borrowing.
- Access to liquidity without selling crypto
- Decentralization and autonomy, without the need for banks
- Fast and efficient transactions, with no paperwork
- Potentially lower interest rates
- Volatility of collateral price could lead to liquidation
- DeFi smart contract risks are vulnerable to bugs
- Counterparty risks such as platform bankruptcy
- Regulatory uncertainty
It's important to weigh these pros and cons carefully, conduct thorough research, and consider your risk tolerance and financial goals before engaging in Ethereum loans or any other financial activities in the crypto space.
Final Thoughts
Ethereum loans represent an innovative way of getting funds for any purpose. Smart contracts eliminate third parties and make the whole process secure and transparent.
Yet, it’s crucial to do thorough research and compare available options when selecting the best ETH lending platform.
Consider the potential risks such as locked funds and price fluctuations. By carefully examining the terms, yields, and associated risks, you can make an informed decision that aligns with your financial goals.
Also, it is essential to recognize the diversity of preferences among users. Some emphasize faster execution and low costs, while others place a greater emphasis on earning yields. Choose the platform that suits your requirements and has a solid reputation in the crypto industry.
Binance is our top choice of platform due to its huge range of coins, low interest rates, and flexible repayment options.
| Name | Score | Visit | Disclaimer | |
|---|---|---|---|---|
| 9.1 | Visitbinance.com |
