With the rise in cryptocurrency taking place over the last few years, many projects, innovations, and economic opportunities have arisen. One of these is crypto loans, which have become increasingly popular. Nowadays, crypto loans are a huge part of the crypto market and industry. 

 

The variety of crypto loans available can effectively be separated into two categories: CeFi, and DeFi loans. DeFi loans are handled on decentralized systems, whereas CeFi loans are provided by a centralized body. Here are some of the main differences between these two types.

 

DeFi loans lack regulations

 

Like the vast majority of DeFi projects, DeFi loans are unregulated. This is because decentralized projects do not (and cannot) have any regulatory bodies assessing and managing activity. Instead, blockchain technology handles all actions. CeFi crypto loans, on the other hand, can be regulated and managed, as there are real humans checking through the process to make sure everything is running smoothly.

 

DeFi loan platforms often have experimental features

 

As decentralized technology is relatively new in the FinTech world, developers often try new and experimental features, sometimes as a means of appearing more cutting-edge or to seem ahead of the curve. However, experimental features are often flawed, due to their inexperience. Take “flash loans” for instance, these are loans where the lender’s and borrower’s actions all take place within one single blockchain, meaning that the money borrowed must be paid back within a matter of seconds. These loans are useful for taking advantage of arbitrage options. However, flash loans are a novel technology, and because of this, it meant that people could maliciously attack them to make profits. This does not happen with CeFi loan platforms, as they often use tried-and-trusted methods for providing loans to people. 

 

CeFi loan providers can offer more crypto options

 

Most DeFi loan platforms offer loan options based on a range of tokens that run on the Ethereum network. While this allows for plenty of cryptocurrencies to be borrowed and lent, it also leaves out a great deal of other important cryptocurrencies; namely Bitcoin. Most DeFi providers do not offer Bitcoin, or Bitcoin Cash, or Litecoin-backed loans. However, CeFi lenders can do this, as their loans do not run on any blockchain. Additionally, CeFi lenders can also provide loans for Ethereum and other tokens running on the Ethereum network. 

 

CeFi providers can offer fiat cash

 

CeFi loan providers can send you fiat cash (legal tender) directly to your bank account after your loan is approved. This is something DeFi lenders cannot do, as fiat cash cannot run on a blockchain. Instead, DeFi lenders offer stablecoins, which are cryptocurrencies that are pegged to fiat cash. Stablecoins are useful in this sense, but converting stablecoins to actual fiat cash can be a hassle, and can take a long time, especially if you need the money from a loan instantly. 

 

There are many other differences between CeFi and DeFi loan providers, but these are four of the main ones, which everybody should consider before choosing how they wish to proceed if they want to collateralize their crypto for a loan.