Point of Lending Crypto services?

[CristianOff]

I recently found out that there are some sort of lending platforms where users can borrow crypto (Bitcoin, Ethereum, etc).
Because of the risk involved, on most platforms users have to place a collateral of at least 100% of the borrowed amount.

If you want to borrow $100 worth of Bitcoin, you will deposit a collateral of $100 worth of Ethereum or Litecoin.
Sometimes you need to deposit more, like 125% of the borrowed amount.

What is the purpose of these companies and how can they survive? Why would someone use a borrowing service and
pay interest rate when they can exchange their collateral on exchanges and never suffer those interest fees in first place?



 

[1714314390]

1714314390

[CristianOff]

A question just popped up in my mind. What if there would be an online lending platform for crypto where users need to prove their identity and proof of address. In case of
fraud (stealing crypto away), they are taken to court.
Would that ever be sustainable? 

[UserU]

You know, there's a Lending subforum here and most lenders are following such concept.

Basically the middleman or the platform allows borrowers to deposit their collaterals before being granted a loan. Meanwhile, the lenders are guaranteed the access to the borrowers' collaterals should the former fail to pay up the agreed amount.

Of course there are fees involved to cover the operation costs. By using your example, the lender's $125 (or $25 profit) is deducted by a small 10% fee.

[odolvlobo]

Why would someone use a borrowing service and pay interest rate when they can exchange their collateral on exchanges and never suffer those interest fees in first place?

One reason might be to borrow the bitcoins in order to short them.