The growth of DeFi in recent years has opened the doors to a new realm of finance for crypto holders.
In the DeFi lending and borrowing sector, you don't need to sell your tokens to get cash from them. Instead, it provides a route to use your holdings as collateral to take out crypto-backed loans.
There are many DeFi lending platforms to choose from, and you need to be careful not to choose one that might collapse while your Crypto Loan is still active. Fortunately, you won't need to hunt through them all because we've done the research for you!
In this article, you'll find the three best tokens for crypto collateral loans.
1. My Freedom Coin – A crashproof asset that offers loans with zero liquidation risk.
2. Aave – A decentralized money market that allows users to lend and borrow.
3. Compound – An algorithmic lending platform with variable interest rates.
My Freedom Coin tops the list as the best token for collateral loans as it's the industry's only crashproof asset.
The economics behind My Freedom Coin is totally unique. They provide a stable and consistent growth vector for the token and help minimize the negative volatility within the market for users. Furthermore, because MFC is crashproof, there is no risk of loans being liquidated – a feature that no other lending platform can offer!
My Freedom Coin is an all-in-one DeFi project housed on the Binance Smart Chain. It is an exchange platform, a wallet, and a bank – wrapped into one piece of software.
The price for MFC is crashproof due to the Floor Price created from the assets held in the BUSD Treasury. The assets in the treasury are filled through a series of higher token offerings until all 7 billion MFC are released into circulation.
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Additionally, all the proceeds generated from the DeFi software constantly contribute to the increasing value of the native token – MFC. For example, the Floor Price also increases from burning coins generated by license fees, exchange fees, transaction fees, and fees generated from loan interest. Furthermore, any MFC sent peer-to-peer incurs a small 0.5% fee, which is taken out of circulation, helping lift the Floor Price.
The Floor Price is calculated using the following formula;
Floor Price = BUSD in BUSD Treasury / MFC Circulating supply.
The BUSD in the treasury will always be available to buy all of the MFC in circulation at the current Floor Price. Because the BUSD Treasury is constantly being filled up through the token offerings and fees generated on the platform, the Floor Price will only ever increase.
Once the Floor Price reaches the purchase cost of your MFC investment, it becomes entirely risk-free!
Alongside being a crashproof asset, My Freedom Coin also provides a service for users to take out BUSD loans from the treasury by using MFC as collateral. This allows borrowers to receive cash loans from their MFC holdings without selling off the asset.
Loans are charged at a 0.98% monthly interest rate, which must be paid when returning the loan. The interest rate is set in MFC and is removed from circulation to help further increase the Floor Price for MFC. Additionally, the borrower must pay a one-time 0.5% loan processing fee.
The loans on My Freedom Coin aren't overcollateralized because the loan is priced at the Floor Price for the token, not the current floating price.
For example, if you required a $28,000 loan and the Floor Price was $0.14, you would need 2000 MFC tokens for the loan – even if the floating price for MFC was $0.28 at the time. After repaying the loan, and the interest accrued, your collateral is released back to you.
Once you have the loan, nothing is stopping you from using it to buy more MFC tokens to take further advantage of the constantly increasing Floor Price. Furthermore, there is no risk of your loan being liquidated as it's priced using the Floor Price, which will never go lower.
My Freedom Coin is free to download on iOS and Android. However, being an invite-only DeFi platform, you will need to scan the following QR code to sign up;
CODE: ABXNMMXPHN
Overall, MFC is one of the best tokens for collateral crypto loans. It is the only existing cryptocurrency with a Floor Price where all the proceeds contribute to the appreciation of the coin. Additionally, its protection from loan liquidations and low interest rates make it the best platform to take out BUSD loans.
To find out more, follow them on Twitter or join the discussion on Discord.
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Aave is the number one DeFi lending platform that allows users to lend or borrow cryptocurrency. It is an algorithmic money market, and all funds are provided by Aave users, not a central entity.
The lending platform allows both borrowers and lenders to participate in the lending market.
Lenders can deposit cryptocurrency assets into smart contract pools on the protocol to provide loans to other borrowers. The lenders earn interest for depositing their assets into specific pools.
Borrowers can come and take Crypto Loans from these pools and pay interest to the lenders during the loan term. To secure a loan, borrowers must overcollateralize their collateral by at least 150%. For example, to borrow $1000, the borrower must post $1500 worth of collateral.
If the value of the collateral drops beneath the liquidation ratio, the system will liquidate the loan, and the collateral will return to the pool.
The loan interest rate depends on the "utilization rate" of the assets in a particular pool. Interest rates tend to be higher for assets with a higher utilization rate. Conversely, if assets aren't being lent out, the interest rates will decrease to encourage borrowing.
The native token, AAVE, is a governance token that grants voting rights regarding protocol proposals.
Compound Finance is another leading money market protocol that allows users to borrow and lend their crypto assets. Described as a permissionless marketplace for money, Compound Finance enables users to lend their assets to earn interest from borrowers looking to take out loans.
When a lender deposits assets into the protocol, they are converted into cTokens. For example, if a lender deposits ETH into the protocol, it will be converted to cETH. The cTokens represent claims to a portion of the assets in the pool for the lender. The cTokens can be transferred and used on other protocols and still earn the interest from borrowers.
The interest rates charged to borrowers on Compound Finance are variable as they are a function of the supply and demand for Crypto Loans. For example, the interest rate tends to be low if the pool is filled with lots of assets. On the other hand, if the liquidity in the pool is thin, the interest rates will be higher.
COMP token holders have voting rights and can use these to adjust the interest rates in certain pools.
Borrowers must overcollateralize their loans to protect lenders from default risks. The level of over-collateralization varies from pool to pool, but a rate of 150% is generally required. Once the loan and interest are repaid, the collateral is returned to the borrower.
Collateral Crypto Loans allow holders access to cash by using their cryptocurrency as collateral to secure a loan. It enables holders to receive cash for their cryptocurrency without selling their assets, for example My Freedom Coin that enables BUSD loans to let holders buy more tokens.
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Like a securities-based loan, the borrower assigns a certain amount of cryptocurrency capital to the lending platform to secure the loan. Typically, the loan is in a stablecoin, but different lending platforms offer a range of cryptocurrencies you can borrow.
Once the loan is secured, the borrower is free to do as they please with the stablecoin. When the borrower is ready to repay the loan, they must pay the interest accrued.
The collateral acts as security for the lender. Unfortunately, most lending platforms overcollateralize loans by 130% or more.
If the borrower cannot repay the loan within the specified term, the lender can claim the collateral as their own. Usually, the lender would just sell the collateral to turn it back into stablecoins.
Taking out crypto collateral-based loans is an excellent way of squeezing out some cash from the crypto holdings you aren't willing to sell. Once the loan has been repaid, you are free to reclaim your collateral and continue to take advantage of any token growth.
The best place for a crypto collateral loan is undoubtedly My Freedom Coin. The DeFi platform offers protections such as zero liquidation risks, which no other lending platform in the sector can provide.
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Disclaimer: Analytics Insight does not provide financial advice or guidance. Also note that the cryptocurrencies mentioned/listed on the website could potentially be scams, i.e. designed to induce you to invest financial resources that may be lost forever and not be recoverable once investments are made. You are responsible for conducting your own research (DYOR) before making any investments. Read more here.