After being approved for a crypto loan and eventually acquiring it, you are now faced with the question of “What can I do with this?” Unless you already have a clear vision in mind, it may be difficult to think of what you can put this loan towards. After all, cryptocurrency isn’t as familiar or mainstream as fiat currency.

 

In this article, we will take a look at frequent use cases of crypto lending.

 

What can these loans be used for?

 

Crypto loans are among the most efficient and cost-effective methods of cryptocurrency management when you need to access fiat currency. You can use your loan for a variety of purposes. Users can diversify their investments, fund a business, or even pay off high-cost debt. Different platforms allow different uses of the loan, so it would be smart to make sure that what you want to do with your loan is permitted by the platform you are using.

 

Common use cases

 

To better understand how crypto lending platforms and markets operate, one should look at the different ways to participate in them. These range from beginner level to expert.

  • Single-asset, single-platform lending: By far the most rudimentary and commonly used aspect concerning crypto-lending markets is lending. It would be smart to check different platforms’ rates with a tracker in order to find the best returns for the asset you are thinking about lending. A good example of a reliable tracker is CoinMarketCap’s interest rate tool.
  • Liquidity that is non-taxable and dollar-denominated: For those who identify as crypto HODLers, there could be a substantial amount of wealth in their portfolio. However, when they need cash, selling that crypto will spark a taxable event. It would be wise to talk with a tax consultant about what your needs are. At the same time, using crypto as collateral to acquire a dollar-pegged loan is ideal for HODLers to obtain liquidity in order to cover expenses. Moreover, they will not lose investment exposure or feel the need to pay taxes on their gains.
  • Margin trading (i.e. leverage): Crypto lending’s rise in popularity has led to easy access to leverage, without needing to go through a centralized exchange. Users can gain leverage by taking out a loan, buying extra collateral, and boosting their loan amount on a loop. And they can do this until reaching the limit. This functions as a “long” investment on whatever collateral has been selected.
  • Liquidations: For the tech-savvy bunch, they have a chance to take on the role of a liquidator within the DeFi ecosystem. Liquidators operate bots that pinpoint the loans that fall under the mandatory collateralization ratio. Furthermore, they liquidate that collateral to reimburse the lender, thus earning a fee in exchange for their services. As competitive as this is, there are sizable profits that can be made.