Crypto Lending: A Practical Guide for Investors and Borrowers

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19 min read

The blockchain technology that empowers cryptocurrencies like Bitcoin and Ethereum and peer-to-peer lending is a natural fit that might help overcome some of the inherent problems with many P2P lending platforms today.

Many experts predict that the blockchain technology will prove itself as a groundbreaking innovation leading to a new economic system often referred to as the blockchain economy. In this new economic system, rules defined by smart contracts will make sure that agreed-upon transactions are enforced autonomously. Therefore, peer-to-peer lending in many ways seems like the perfect use case for the blockchain technology as it potentially enables lending platforms to establish a business model much less dependent on trust relations between lenders and borrowers than what we see today.

To existing P2P lending platforms, banks, and credit unions, however, blockchain technology poses a serious threat if they are not able to innovate and utilize the possibilities contained in the technology. Even though blockchain is still a nascent technology, many new platforms operating within crypto lending are already taking substantial market share and make interesting showcases for how crypto lending can be used to provide blockchain loans.

In this article, we will take a thorough look at the problems faced by many of today’s P2P lending platforms and crypto lending powered by blockchain technology can help provide solutions to some of these problems. We will also have a close look at some of the most prominent and best crypto lending platforms and investigate how they put the blockchain technology to use in their lending operations. Lastly, we will also explain how it is possible to invest in blockchain-based loans and borrow using cryptocurrencies.

Table of Contents

What is Crypto Lending?

Like all types of peer-to-peer lending, crypto lending is a crowdfunding type that connects investors/lenders with borrowers through an online platform acting as a trusted third party. The three main agents involved in this process are:

  • Private individuals or institutions providing funding
  • An online p2p platform mediating the transaction
  • A business or private individual seeking funding

However, in the traditional P2P lending model a bank, credit union, or another type of financial institution is needed as an intermediary to assist the peer-to-peer platform in securing objectivity in the transaction and build trust. The need for intermediaries and regulation means that transactions on traditional peer-to-peer platforms are subject to added cost and time requirements as well as security issues.

Blockchain is at the core of the FinTech revolution and has the potential to cause radical change to a large number of industries, including financial services and P2P lending. The key advantage of using blockchain technology in peer-to-peer lending is that it can remove intermediaries from the lending process. This has a large range of benefits that we will cover in the next section. First, we will provide a brief introduction to the blockchain technology and how the key features of blockchain are also relevant in P2P lending and can ultimately be utilized to power crypto lending platforms.

If you are new to peer-to-peer lending and want to learn more about what characterizes this type of lending, you might want to check our article where we explain the basics of peer-to-peer lending before reading on.

A Brief Introduction to Blockchain

For many people, especially if you are not a tech wizard, it can be hard to grasp what the blockchain technology is and why it is so revolutionizing. We will try our best to explain it in a short and precise manner.

A blockchain is a digital redesign of an archive or log system called a ledger. Since ancient times, commercial transactions have been stored in ledgers, but they have always been prone to errors because they have relied on human inputs. The dependency of human intervention leads to added costs and inefficiencies for both organizations and the economic system as a whole. To avoid this, the blockchain technology is based on a combination of cryptography and distributed networks. The technology is, therefore, also closely related to cryptocurrencies – the most famous example being Bitcoin launched in 2008 to provide “…an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.” (Nakamoto, 2008).

Despite being introduced in 2008, a generally accepted definition of what the blockchain technology is has been lacking. In our opinion, the best technical definition of the concept is given by Seebacher & Schüritz (2017), who – based on a structured literature review of peer-reviewed articles on blockchain present the following definition:

A blockchain is a distributed database, which is shared among and agreed upon a peer-to-peer network. It consists of a linked sequence of blocks, holding timestamped transactions that are secured by public-key cryptography and verified by the network community. Once an element is appended to the blockchain, it can not be altered, turning a blockchain into an immutable record of past activity.

However, blockchain is not just a breakthrough in technological innovation. It also raises philosophical, cultural, and ideological questions by providing a valid alternative to traditional trusted intermediaries. Consequently, it is useful to add a legal and business perspective to the technological definition given above: Thus, from a legal point of view, blockchain can be defined as a technology to validate transactions, whereas from a business perspective it can be defined as a peer-to-peer network for transferring value (Rosati & Cuk, 2019).

Key Features of Crypto Lending – How P2P Lending Can Benefit from Blockchain Technology

The two main characteristics of the blockchain technology are its trust evoking and decentralized nature – both characteristics that are also essential for the development of peer-to-peer lending. In the blockchain technology, trust and decentralization are inextricably interconnected: To create a decentralized network you need mechanisms to build trust, and decentralization enables the users to get involved in the network and establish the foundations for a consensus mechanism that can eliminate the need of a trusted third party. 

Building Trust in P2P Lending Using Blockchain Technology


A crypto lending platform based on blockchain technology would ensure a larger degree of transparency compared to a traditional peer-to-peer lending platform. This is done by making information available to both borrowers and lenders participating on the platform. In true P2P crypto lending, both past and current transactions can be viewed by all participants, thereby providing full disclosure of all activities. When a new transaction occurs, it is broadcasted through the entire network. The interaction is, thus, both public and shared. Also, as no single intermediary controls the system, lenders and borrowers can interact directly reducing friction in the transaction.

Data Integrity

The fact that lending on peer-to-peer crypto lending platforms is blockchain-backed should, given the implementation is done well, secure the integrity of data. This is done by securing the data through peer verification of transactions and the facilitation of direct interaction through public-key cryptography. As a consequence, every user can verify the correctness of broadcasted transactions based on predefined rules.

Data Immutability

The last key feature in building trust on crypto lending platforms is the immutability of data. A database build using blockchain technology is designed so that transactions are unable to be altered once they have been added to the blockchain. The process of adding a transaction to a block happens through a consensus mechanism requiring proof-of-work – a computational puzzle where the solution must be verified by other network participants.

Enabling Decentralization in Crypto Lending Using Blockchain Technology


Depending on the type of blockchain used to enable crypto lending, the identity of users will be covered by pseudonyms. This, combined with the usage of public-key cryptography to secure interactions, will facilitate a degree of privacy for users in crypto lending not found on traditional P2P lending platforms. Learn more about the different types of blockchain in the section “Blockchain Types and Their Usability in P2P Lending” below.


Reliability of the system enabling crypto lending should optimally be established by sharing and storing information on transactions throughout the system and by the facilitation of automatic measures. This would reduce the need for manual intervention and, thereby, the risk of individual mistakes.


The blockchain technology allows peers to participate in the development of the underlying code supporting the database. This contributes to the creation of an open and versatile system where participants can develop and distribute their own code and functionality. Very importantly, this also enables the development of smart contracts – a contractual agreement between two parties, e.g. a lender and a borrower in P2P lending, based on a piece of code programmed to automatically fulfill the terms of the contract. More on this below.

The main source used for the descriptions above is a structured literature review made by Stefan Seebacher and Ronny Schürtz, both from the Karlsruhe Institute of Technology. You can find their research paper here: Blockchain Technology as an Enabler of Service Systems: A Structured Literature Review. If you want to dig deeper into the possible uses of blockchain technology this is a great article for further reading.

The Use of Smart Contracts in Crypto Lending

Largely due to the huge attention received by Bitcoin, blockchain is in the general public mostly known for its ability to process financial and monetary transactions. Nevertheless, another important aspect of the use of blockchain in crypto P2P lending is the ability to create smart contracts, which ensure that transactions agreed upon by the parties (lenders/borrowers) are enforced autonomously following rules defined by the smart contract. In other words, a smart contract is a file with a self-executing code based on parameters specified in the contract. Blockchains supporting the functionality of smart contracts are also referred to as blockchain 2.0.

In crypto lending, a well-designed smart contract would contain the initial loan amount and the repayment terms, including penalties if payments are late or missed. If a business makes a loan of, for example, $100,000 with a repayment term of 24 months at $5,000, the smart contract should automatically execute the payment requests, receive the payments, and adjust the due amount without the need of involving any intermediary. Also, it is possible to embed automatic compensation functions in the smart contract, like deducting percentages for early loan repayment, adjusting credit ratings, or converting to a higher yield currency.

Blockchain Types and Their Usability in Crypto Lending

Blockchain is often talked about like it is all the same, but in reality, different types of blockchain exist. When most people talk about blockchain, they are actually talking about a permissionless public blockchain like Bitcoin or Ethereum (see table below), but other types of blockchain exist as well. While all types of blockchain share common features like a distributed network, cryptography, and timestamped transactions, there is a crucial difference in the ability of users to read and submit transactions to the blockchain. This ability depends on their access to transactions and carries important implications for how peer-to-peer platforms can utilize blockchain in P2P lending. An overview of the different types of blockchain with examples can be found below.

Adapted from Beck et al. (2018)

Best Crypto Lending Platforms

The peer-to-peer lending industry is already disrupting traditional providers of debt by providing an interesting opportunity for investors to achieve an attractive and stable stream of passive income while also offering a fast and customer-friendly way to meet the financing needs of borrowers. At the same time, P2P lending is often used as a way to diversify investors’ investment portfolios. However, the lending industry is still mainly dominated by banks and traditional financial institutions.

To disrupt the lending industry more profoundly, P2P lending platforms must develop the peer-to-peer business model further. Here, blockchain is likely to play a key role and some of the top crypto lending platforms are already making use of some of the benefits the technology has to offer. As mentioned earlier in the article, the technology is nevertheless still nascent, and we are only scratching the surface of unlocking the future potential of blockchain technology and crypto lending.

Below, you will find examples of crypto lending platforms utilizing the blockchain technology to offer peer-to-peer lending. We will explain how each platform is taking advantage of the blockchain and provide you with a brief guide on how to get started as an investor or borrower.

On some platforms, you can invest and earn interest using fiat money like USD, EUR, or GBP. Other platforms are operating as pure P2P crypto lending platforms why it is necessary to acquire one or more cryptocurrencies to get started, which can be done at for example Coinbase. If you want to borrow on a crypto lending platform, you must own an accepted cryptocurrency as it is used as collateral for the loan.

Constant (MyConstant)

Constant started as stablecoin (CONST) project in January 2019 launching a digital currency backed by the US Dollar at the CES 2019, an influential tech event. In May 2019, Constant launched their crypto lending platform with the aim of tackling some of the central issues with traditional P2P lending discussed earlier in this article. Consequently, the Constant team wants to deliver on two central areas:

  1. Give investors control over amounts, rates, and terms
  2. Secure all lending with collateral to protect investors’ funds and avoid human errors in credit checks and risk evaluation

Investing on the Constant Crypto Lending Platform – How Does It Work?

There are four different options you chose from as an investor on the Constant platform: Flex, Loan Originator (currently suspended), Crypto-backed, and Crypto Lend. Depending on whether you own cryptocurrency already, in our opinion the most interesting options are Crypto-backed and Crypto Lend.

If you own either BNB (Binance Coin), BTC (Bitcoin), or ETH (Ethereum) Crypto Lend enables you to invest these in secured crypto lending for a return of up to 9 % APY. What is particularly nice about this investment option is that you can withdraw anytime you like, there are no fees (except from possibly your wallet or exchange), and interest is compounded constantly. The way Constant lets you earn interest on your cryptocurrencies is by utilizing your crypto to fund liquidity on decentralized exchanges (DEXs) and swapping platforms, providing you with a cut of the trading fees generated when people swap or trade.

If you on the other hand have fiat currency or stable coins you want to invest, this can be done with Crypto-backed lending, where you lend your money/coins to owners of cryptocurrencies, who provide their crypto as collateral. This means that all loans are fully backed by collateral, which is sold if a borrower defaults on payments. This type of P2P lending lets you earn up to 7.5% APR. Constant lets you set your own loan term, giving you the option to choose between terms of 1 month, 3 months, and 6 months. When you have chosen how much to invest and your term, Constant makes sure to match you with a borrower, which happens as soon as your funds are received. At the moment, it is possible to invest using US Dollar (USD), HongKong Dollar (HKD), Tether (USDT), USD Coin (USDC), pUSDT (pUSDT), and Dai (DAI).

If you want to know more about how crypto lending on Constant works, below is a video where the Constant team describes the process:


CoinLoan was founded in 2017 by Alex Faliushin and Max Sapelov to tackle a problem known by many investors in crypto assets who believe in HODLing: the need to sell their cryptocurrency to obtain cash. Thus, CoinLoan was born as a platform for loans secured by digital assets as it went live in July 2018. In March 2020, CoinLoan started offering fiat-to-crypto loans with the possibility of using both fiat and stablecoins as collateral.

How Can You Earn Interest with the CoinLoan Interest Account?

CoinLoan’s investment product is called the CoinLoan Interest Account and promises an interest income of up to 10.3% APY. Interest is accrued daily in the currency of your deposit starting from the moment you deposit funds and can be withdrawn anytime you like. No fee is charged for neither deposits nor withdrawals in Euro and stablecoins.

The lending process and the role of CoinLoan can be illustrated this way:

As can be seen from the illustration above, the lending operation on CoinLoan works similarly to a bank with a part of your deposit being used to create loan offers, here just in the form of crypto-backed lending. Also, the entry barrier is relatively low on CoinLoan with a minimum deposit of approximately $100 (varies depending on the asset).

The highest returns can be achieved with staking CLT, the CoinLoan utility token. Stacking is used to increase the value of a coin and is the process of holding assets to support its operations. For every 250 CLT you own, your interest rate will increase by 0.1% up to a maximum of 2%. The maximum rate of 2%, thus, requires you to hold 5,000 CLT.

Below you see a list of the available assets with the annual percentage yield with and without the staking of CLT.


BlockFi was founded in 2017 with the aim to enable holders of cryptocurrency to do more with their digital assets. Unlike many other crypto lending businesses, all BlockFi’s financing came from institutional investors and not from an ICO (initial coin offering). BlockFi is based in New York.

At the moment, BlockFi offers two financial products to holders of cryptocurrencies:

  1. An interest account where you lend your crypto to earn compound interest.
  2. Crypto loans where you can raise funds using your cryptocurrency as collateral.

The BlockFi Interest Account

With the BlockFi interest account, you can lend your Bitcoin, Ether, or GUSD to earn compound interest in the cryptocurrency of your choice. This can be achieved simply by storing your cryptocurrencies at BlockFi that will then use your crypto assets to generate interest. The interest is paid out monthly and you can expect to earn up to 6% interest annually.

To generate interest, BlockFi lends the assets held in interest accounts to corporate and trusted institutional borrowers – typically in the form of overcollateralized crypto-backed loans in a structure similar to the crypto-backed loans offered by BlockFi (see more below). This means that BlockFi is running a very centralized lending business model as they do not directly match borrowers and lenders, but act as the lender themselves.

A nice thing to highlight is that the BlockFi client funds are structured to be at the top of the capital stack, meaning that BlockFi will take a loss before any client will in the case of defaults. This creates a healthy incentive structure where it is always in the interest of both BlockFi and its clients to control the risk of the loans issued.

To earn interest on BlockFi you must have a minimum balance of 0.5 BTC or 25 ETH, so the entry barrier is quite high. However, for investors with large cryptocurrency holdings the BlockFi interest account could be an interesting option to earn interest while HODLing.

Crypto-backed Loans with BlockFi

BlockFi is offering crypto-backed loans to holders of Bitcoin, Ether, and Litecoin, which allow crypto holders to access liquidity in USD without selling their cryptocurrencies. This can be an interesting option for cryptocurrency investors in the need for fiat money for some reason, but at the same time want to maintain ownership of their crypto.

In a traditional bank, you would normally have to provide some sort of collateral to obtain a loan. This could be in the form of, e.g. a business or real estate. To obtain a crypto loan at BlockFi, you must stack either Bitcoin, Ether, or Litecoin as collateral. The amount of collateral you need to provide depends on the loans LTV (loan-to-value). BlockFi offers loans with an LTV of up to 50%. This means that if you stake 1 BTC, BlockFi will allow you to take out a loan in USD with a value of 0.5 BTC.

When using crypto lending you need to be aware of margin calls, which will be activated if your crypto assets decrease in value. At BlockFi the first margin call occurs at 70% LTV, which means that the crypto asset used as collateral has dropped by 50% since your loan was issued. To avoid liquidation of a portion of your collateral, it is required that you bring down the LTV to a healthy range, which can be done by either adding additional collateral in the form of crypto or by paying down the loan balance. If no action is taken, BlockFi will lower the LTV back into the safe zone by liquidating some of your collateral. You will receive notification emails if your LTV is approaching 70%.

Applying for a loan at BlockFi is easy and you will receive a loan offer within a business day. There is no prepayment penalty if you decide to repay your loan early.

BlockFi Signup Bonus for New Investors

If you want to get started as an investor on BlockFi, the platform offers a signup bonus of $25 (USDC) to new investors who deposit a minimum of $500 during the first 30 days. The $500 can be deposited in any currency. To get the bonus you must use this link to register at BlockFi. By using this link to register you will also support the continued development of as we will be paid a small commission for referring you.