The use of crypto has become ubiquitous and mainstream. Consumers can now choose to pay in digital assets for pretty much anything. A recent Deloitte report found that, globally, 220 million people use cryptocurrency now, and customers are paying for everything with it — from travel to sports tickets to mobile phone services. Some are even using crypto it to buy homes. However, it’s important to understand how this works and whether there are any potential pitfalls to avoid.
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Trevor Filter, co-founder of Flexa, noted we’re still in the early days of on-chain finance, and this includes borrowing and lending using permissionless protocols such as Aave, Compound, Kamino Finance and others.
“Because of this, we are still working our way toward making it easy enough for everyday people to feel comfortable,” he said, adding that the collapse of Luna showed why it’s so important for responsible and regulator-friendly development in this space.
Crypto Loans: What Are They and Who Do They Cater To?
A crypto loan is a loan via a crypto lending platform. One company offering such loans is Milo, which explained on its website: “A crypto-backed mortgage lets you leverage your BTC, ETH or USDC to invest in real estate. Instead of selling your crypto, you can use it as collateral to qualify and secure a mortgage to purchase a home.”
This innovative approach caters to crypto owners who prefer not to liquidate their holdings, whether due to their long-term faith in asset appreciation — known as ‘HODLing’ — or to avoid triggering taxable events, according to Patrick Gruhn, entrepreneur, lawyer, former FTX (now defunct) executive and CEO of PMX Technologies.
“By leveraging crypto assets, these loans provide access to funds that traditional banking systems might not readily support,” said Gruhn, adding that crypto lenders streamline the underwriting process by relying solely on the collateralized assets, eliminating the need for credit checks and reporting requirements.
“Consequently, crypto loans are typically processed swiftly and efficiently, unencumbered by conventional business hour constraints,” he said.
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