What Is Gate.io Crypto Lending?

Introduction

Cryptocurrency lending is an essential feature of Decentralized Finance (Defi), in which users can lend their crypto to another and receive the principal and interest at the end of the term. Users can also use their crypto as collateral to borrow cryptocurrency from other users and use it freely.

Compared to traditional financial lending in fiat currency, cryptocurrency lending is simple and efficient, with no time-consuming credit checks or cumbersome procedures, and collateral guarantees repayment. If the borrower cannot repay, the collateral will be liquidated and returned with interest to ensure that the lender’s principal is protected via an automatically executed smart contract code or a third-party escrow platform.

Gate.io provides a crypto lending service to meet users’ needs for cryptocurrency lending, allowing them to borrow over 400 different cryptocurrencies while using more than 30 major coins as collateral.

What is Gate.io crypto lending?

Gate.io offers a cryptocurrency lending service called crypto lending. Users who want to earn interest can place lending orders and lend their crypto holdings to people who need it to earn interest. Suppose a user wants to use cryptocurrency temporarily. In that case, they can search the collateral lending marketplace for a lower interest rate borrower, provide a designated cryptocurrency asset as collateral, and borrow a loan.

Crypto lending is available for 10 days, with early repayment after successful borrowing, and interest is calculated and charged hourly from the time of successful borrowing. The minimum interest settlement time for borrowing is 4 hours. The interest is calculated based on 4 hours for borrowings of less than 4 hours, based on an hourly rate for borrowings of more than 4 hours, and based on 1 hour for borrowings of less than 1 hour. If you need to borrow for an extended time, select “auto-renewal,” The platform will automatically renew the loan at the market’s lowest interest rate when the loan term expires.

The interest rate in cryptocurrency lending varies according to market conditions. Gate.io only serves as a lending marketplace, connecting lenders and borrowers. Users can use the borrowed cryptocurrency for any purpose, including trading, purchasing other financial products, using it as collateral for borrowing other cryptocurrencies, withdrawing it to their wallets on the chain, and so on. The only thing to remember is that if the loan is not returned, you cannot retrieve the collateral, and long-term borrowing will incur interest costs and increase the risk of being liquidated.

Compared to well-known blockchain lending platforms such as AAVE, Compound, and MakerDao, Gate.io Crypto lending has the advantages of being simple to use, rich in coins, and having secure assets. Using decentralized lending protocols necessitates technical knowledge to operate an on-chain wallet, the lending and collateral coins are restricted to the blockchain network, and the smart contract is vulnerable to hacking. The Crypto lending feature on Gate.io is equivalent to a cryptocurrency common-place lending marketplace across multiple chains, making it ideal for users who need to lend or borrow money.

How does crypto lending or crypto loan work?

Crypto lending typically has three main types of lending depending on the method of lending:

1. Peer to Peer

Borrowers and lenders placed the order on the platform separately, and the platform assists in matching the two parties based on interest rates. If the value of the collateral provided by the borrower drops and there is a risk of not being able to repay the debt, the funds are sold or transferred to the lender to protect their rights.

2. Stablecoins lending

Users deposit their crypto holdings as collateral to lend stablecoins such as USDT or USDG, whose price is fixed to the US dollar. The interest rate of USDG for borrowing is significantly lower than other stablecoins in the market, so it has a competitive advantage. Its borrowing method can be referred to in the detailed introduction of “Borrow USDG by Collateralizing GT” in the Help Center.

3. Liquidity Mining Lending

Most mainstream lending protocols on the blockchain provide services through liquid pool lending. Users who want to lend will deposit their cryptocurrencies into the pool rather than looking for someone to lend to. Those who need a loan can get the cryptocurrency they need without reaching down to a lender as long as they are willing to put up the total collateral amount and withdraw the cryptocurrency they require directly from the pool. When there aren’t enough funds in the pool, the interest rate on borrowing goes up to encourage users to put money in, and when there are plenty of funds, the interest rate goes down to encourage users to borrow.

Peer-to-Peer lending and stablecoin lending are the two main types of crypto lending that Gate.io offers. Those interested in liquid pool lending can find it in Gate.io Earn’s “Lending & Single-Asset Vault,” which is designed primarily for spot leverage trading. Crypto lending users can deposit crypto assets in Lending & Single-Asset Vault to earn income.

How to use Gate.io Crypto lending

On Gate.io, users can easily use their cryptocurrencies as collateral to borrow from up to 400 cryptocurrencies. Currently, over 30 major coins are accepted as collateral, which should be more than enough to meet the needs of most users. Here’s how it works:

Get a crypto loan on the Gate.io website:

Step 1: Log in to your account on the Gate.io website and go to “Earn” - “Crypto Loan”.

Step 2: Search for the currency your want to borrow and select it. Choose an item from the list according to your demands and click on “Borrow”.

Note:

① Search the currency you want to borrow if it is not already listed;

② Click to go to “Crypto Lending”;

③ Compare the daily interest rate and borrowable amount of each item. Click on “Borrow” to continue the borrowing process.

3.In the “Pledged Borrow” window that pops up, enter “Pledged Borrow” - “Collateral Currency” - “Collateral Amount” and click “Confirm” to complete the process. If you are worried that the collateral price will fall and force you to close your position, you can increase the margin to lower the pledge rate. You can check “Auto Renew” for long-term borrowing needs on this screen.

Note:

① Input the amount you intend to borrow;

② Select the collateral currency;

③ Enter the amount of the collateral;

④ Check all information filled in the boxes and click on “Confirm Loan”

4.You can find “Borrowing History” at the bottom of the “Crypto Loan” page. Here you can view the details of your loan(s) and make a repayment(s).

Get a crypto loan on the Gate.io mobile app:

Step 1: Open the Gate.io mobile app and log in to your account. Go to “Gate.io Earn” - “Crypto Loan”.

Step 2: On the “Borrow” page, select the currency you want to borrow. Choose an item from the list according to your demands and click to continue the borrowing process.

3.Check all information in the boxes and click “Confirm Loan.” If you are worried that the collateral price will fall and force you to close your position, you can increase the margin to reduce the pledge rate. You can check “Auto-Renew” on this screen if you have a long-term loan need.

4.You can find “Borrowing History” at the bottom of the “Crypto Loan” page. Here you can view the details of your loan(s) and make a repayment(s).

Note:

① When the loan-to-collateral ratio reaches 90%, Gate.io will promptly close the position for repayment, which will leave a record in “Payment History”;

② If you have an active loan, please pay close attention to the loan-to-collateral ratio to avoid loss;

③ Before the repayment is made, partial or full withdrawal of the collateral is suspended;

④The collateral will be deducted from the user’s spot account and returned automatically to the same spot account after repayment.

Advantages and disadvantages of crypto loans

Leverage in the financial world is based on lending, which facilitates the productive application of capital and maximizes gains in a positive market. However, if lending is not used properly, it can result in considerable losses. Make sure you take a balanced look before experimenting with lending or borrowing:

Advantages

1.More money to invest

When investing in the cryptocurrency market, investors often find themselves in the uncomfortable position of holding whose price is stagnant while the price of another cryptocurrency is skyrocketing but lacking the funds to switch gears and chase the hot spot. You will need to trade some of your cryptocurrency holdings for another cryptocurrency if you don’t want to be left out of the current market. To avoid selling your cryptocurrency and still take part in the market, you can take out a loan through the market.

2.Earn interest differential

For example, if you currently only have bitcoin in your account, you notice a small coin that is borrowing at 5% in market A but lending at 10% in market B. However, the risk of buying and holding a small coin is high. You can take bitcoin as collateral, borrow from the market with a low-interest rate, lend in the market with a high-interest rate, and take the interest difference.

3.Use Margin for Profit

It is mainly used for coins that provide liquidity staking, and the original staking yield is multiplied by borrowing and lending in a single-currency cycle. In the Ethernet blockchain network, for instance, users can convert their ETH to stETH, use the AAVE protocol to borrow ETH, and finally use the borrowed ETH to purchase even more stETH. Repeating this step repeatedly, the yield on stETH can be significantly increased, with the caveat that chain liquidation may occur when the stETH/ETH exchange rate decouples and falls.

4.Collateral swap

A collateral price drop leading to liquidation is the worst-case scenario for users with multiple lending positions. To illustrate, say a user used Doge as collateral to lend out USDT when Doge’s price was skyrocketing. When Doge’s price dropped, and there was a risk of liquidation, but it was too late to raise USDT for repayment, the user could borrow USDT against more valuable collateral (such as BTC) to avoid having to sell their Doge on the platform.

5.Quick and simple payment processing

In contrast to traditional financial lending, collateralized coin borrowing does not require a cumbersome credit check or a long wait to obtain a loan, as long as you have cryptocurrency that can be used as collateral, it is immediately available upon application.

Disadvantages

1.High risk of liquidation

Because crypto lending involves using other people’s money for investment, spending, or other purposes, the borrower must always guarantee the ability to repay. If the collateral price falls and there is a suspicion of insolvency, the borrower will be forced to liquidate and sell to repay the money owed.

2.Limited use of funds

Inconvenience to users is a downside of crypto lending despite its potential benefits for better financial management. If you use Bitcoin as collateral to borrow US Dollars to buy another cryptocurrency and Bitcoin’s value suddenly increases before you make a significant profit, you won’t be able to sell all your Bitcoin at a good price because you haven’t yet repaid your loan, even though the higher collateral value reduces your risk of liquidation. In other words, crypto lending essentially gives up collateral capital utilization to increase currency capital utilization.

3.Potential Danger from Outside Sources

But even with low pledge rate lending or low lending, there is always the chance of loss. There have been reports of users losing money due to bad debts caused by code vulnerabilities in DeFi’s lending protocols, which hackers can exploit. While the Gate.io platform makes every effort to ensure that lending is available at all times and that borrowers and lenders can meet one another’s needs, extreme price fluctuations or other unforeseen circumstances may cause borrowers to lose their loan principal or collateral. By using this service, borrowers accept these risks and potential rewards.

Things to consider before getting a crypto loan

The following tips will help you use Crypto lending more safely, even though the process is easier than traditional fiat currency lending, and the funds can be obtained quickly without complicated vetting. The funds owed are not money that falls from the sky, and the borrower risks losing the security deposit if they fail to repay the obligation.

1. Pledge Ratio

What is meant by the term “Loan to Value Ratio” (LVR) is the proportion of the loaned amount to the value of the collateral. Over-collateralization is used in crypto lending to protect the lender from defaulting borrowers. With a pledge rate of 70%, a user can only borrow up to 70 USDT when pledging 100 USDT as collateral. When the pledge ratio reaches 90%, either because the collateral’s value has decreased or because interest has accrued on the loan, the platform will require the collateral to be liquidated and repaid.

2. Interest rates

Crypto lending interest rates will rise or fall in response to fluctuations in the market for short-term loans. Interest rates are fixed for loans with terms of 10 days or less; however, for longer-term loans with auto-renewal enabled, the platform will re-borrow from the market at the best Interest rate each time the loan expires, with the rate fluctuating between installments. A rise in market interest rates raises the cost of borrowing and increases the risk of liquidating the collateral margin.

3. Lending market depth

You can sometimes borrow and other times you can’t, depending on whether or not you’re using a cryptocurrency that is highly liquid and widely used. Users can set up automatic renewals for large cryptocurrency loans; however, if the platform cannot find a lender willing to renew the loan, the renewal will fail, and the user’s collateral asset will be liquidated to cover the debt. Suppose you need to borrow cryptocurrency for an extended time but are worried about the lending market’s lack of liquidity. In that case, you may consider buying a spot and hedging with the perpetual futures contract. Check out “What is a Future Contract?” from the Gate.io Academy to learn more about using perpetual contracts as a price hedge.

4. Don’t over-borrow

Users should consider their ability to repay any Crypto loans before signing up for any such services. No matter the motivation behind your borrowing, the first rule of good money management is never to spend more than you earn. Excessive pledges caused by revolving loans when market prices were unfavorable have led to the liquidation of many users and even some institutions, which have incurred massive losses. Avoid taking out loans if you have doubts about your full ability to pay them back.

Conclusion

On the Gate.io platform, users can take advantage of the crypto lending service by pledging one digital currency in exchange for borrowing another. The system will match orders from marketplace lenders based on the number of loans and interest rates. Currently, more than 30 major currencies are supported as collateral, and over 400 different cryptocurrency lending markets are available for borrowing.

The user only needs to provide sufficient collateral to match with the lender and can get the money immediately without personal credit check, complicated process, or long waiting time, which are all disadvantages of traditional financial lending services. Whenever the system determines that the value of the collateral has dropped below a predetermined threshold and it is suspected that you may not repay the debt, the platform will sell the collateral to safeguard the lender’s rights.

It’s important to remember that despite the convenience of Crypto lending, borrowers still have to pay back the money they borrow. As long as there are loans, there will be interest costs and the risk of collateral liquidation. Borrowers can be severely impacted by fluctuations in interest and pledging rates. Understanding the working mechanism and properly controlling the capital is the only responsible way to use Crypto lending.