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Crypto Loans Without Collateral – Do They Exist in 2024?

Eliman Dambell
Last updated: | 8 min read
crypto loans without collateral

In traditional lending, there are are two main types of loans you can get: secured and unsecured loans. The concept of unsecured loans allows you to be given a loan without having to put any collateral up whatsoever, allowing you to access funds based on creditworthiness and financial status. But do the same opportunities exist in crypto?

In this article we’ll be examining whether crypto loans without collateral actually exist in 2024, where you can find them and to whom they are accessible.

In Short: What is a Crypto Loan Without Collateral?


A crypto loan without collateral is a type of unsecured loan where borrowers can obtain funds without having to pledge any assets as collateral. Instead of relying solely on physical assets or credit scores to assess borrowers’ creditworthiness, these loans leverage blockchain-based mechanisms to determine eligibility and mitigate risks.

Do Crypto Loans Without Collateral Exist in 2024?


While unsecured loans are very common in the traditional world of finance, they are extremely rare in the world of crypto due to its anonymous nature and high risk profile. This means that crypto loans without collateral are not accessible to the average crypto user.

Nevertheless, this isn’t to say that they don’t exist. A special type of loan called a ‘flash loan’ allows users to borrow crypto and repay it within the same transaction, meaning that the lender is guaranteed to receive their capital back. Yet these are highly complex to use and are only for special use cases.

There are also some emerging instances of platforms offering unsecured crypto loans to businesses, which we will explore in more depth below.

Types of Crypto Loans With No Collateral Required


While crypto loans without collateral are relatively rare compared to traditional loans, there are a few types available in the market. The two main are flash loans and business-to-business (B2B) no-collateral loans. Flash loans are the most popular option due to their speed and accessibility.

Crypto loan graphic

Another one of the best ways to get crypto loans without collateral is through B2B loans. Several crypto lending services, like Atlendis and Goldfinch, offer solutions to companies seeking such loans. Let’s look at both types to get more details on how to borrow crypto without collateral.

Flash Loans

Firstly, flash loans are a type of crypto loan that allows borrowers to access funds instantly without collateral. This comes on the condition that the loan is repaid within a single transaction block. These loans are typically used for arbitrage opportunities, trading strategies, or other time-sensitive transactions.

Using smart contracts, platforms like Aave and Uniswap offer crypto flash loans to users, enabling them to execute complex financial operations within the decentralized finance (DeFi) ecosystem. In 2022, Beanstalk experienced a flash loan attack where a hacker stole $182 million. The hacker used a crypto flash loan from Aave to buy enough of Beanstalk’s governance token to gain control of the network and drain the protocol funds into his private Ethereum wallet.

B2B No Collateral Crypto Loans

For businesses, there is another type of crypto loan without collateral available for prequalified companies seeking financing. Unlike retail borrowers, businesses can access funds based on their business model, revenue streams, and other financial metrics.

For companies looking to borrow USDT without collateral, decentralized crypto lending platforms like Atlendis Protocol and Goldfinch provide no collateral crypto loans to eligible businesses, allowing them to access liquidity for various purposes, including expansion, inventory financing, and working capital.

Atlendis Protocol

Atlendis Protocol or Labs is a decentralized lending platform that facilitates no-collateral crypto loans for businesses. Utilizing blockchain technology and smart contracts, Atlendis enables businesses to access funding without traditional collateral requirements. On its website, it says, “This approach offers businesses a new avenue for financing while providing investors with asset-backed opportunities.”

The platform uses innovative credit scoring algorithms and risk assessment models to evaluate borrowers’ creditworthiness and determine loan terms. It secured a $1 million loan from the French National Bank in 2023 to help further its development and to simply the process of obtaining a Bitcoin loan without collateral.

Atlendis Protocol site

Goldfinch.Finance

Goldfinch is another platform that offers financing to businesses in need of crypto loans without collateral in the USA. Through its decentralized lending protocol, Goldfinch connects borrowers with lenders without the need for collateral, enabling businesses to access liquidity quickly and efficiently.

The platform’s underwriting process considers various factors, including revenue streams, business model viability, and market demand, to assess borrowers’ creditworthiness and determine loan eligibility. It currently has an active loan value of nearly $100 million.

Last year, they hit the headlines when Tugende, a company to benefit from a Goldfinch loan, defaulted on their $53,400 monthly repayments. Since then, Tugende has started to repay its liabilities after agreeing to a loan restructuring plan.

Goldfinch site

Why Do Most Crypto Loans Require Collateral?


Crypto loans typically require collateral to mitigate the risk for lenders. Since the crypto market is highly volatile and lacks regulation, lenders need assurance that borrowers will repay their loans. Collateral provides this assurance by allowing lenders to seize the borrower’s assets in the event of default.

Without collateral, crypto loan providers would be exposed to significant risk, making it less likely for them to offer loans without it. An example of a loan default was Three Arrows, who failed to repay a $670 million loan following the bankruptcy of Terra. As a result, fiat or crypto collateral has become a standard requirement for most crypto loans, ensuring a level of security for both lenders and borrowers.

How Hard Are Crypto Loans Without Collateral to Get?


Crypto loans without collateral are not readily accessible to the average crypto user, and they are usually not free. They are primarily utilized by experienced traders and institutional investors. These loans are commonly obtained in the form of flash loans, which are short-term, uncollateralized loans used as part of advanced trading strategies.

Flash loans as we touched on earlier in the guide, allow traders to execute complex arbitrage or liquidation trades without putting up collateral, leveraging their existing assets for short-term gains. However, due to the sophisticated nature of these loans and the risk involved, they are typically limited to users with a deep understanding of the crypto market and access to advanced trading platforms. Hackers often target flash loan providers in attacks. An example of this was Euler Finance, which lost nearly $200 million following such an instance.

The Risks of Crypto Loans Without Collateral


While crypto loans without collateral offer flexibility and convenience, they also come with inherent risks. One of the primary risks of borrowing crypto without collateral is the potential for default, as borrowers are not required to provide collateral to secure the loan.

In the event of default, lenders have limited recourse to recover their funds, leading to potential losses. Additionally, without collateral to mitigate risk, lenders may impose higher interest rates on these loans, reflecting the increased level of risk involved. Borrowers should carefully assess their ability to repay the loan and consider the potential consequences of default before obtaining a crypto loan without collateral.

Alternatives to No Collateral Crypto Loans


While no-collateral crypto loans offer flexibility, they may not be suitable for all users due to their inherent risks. Fortunately, several alternative types of crypto loans provide more security and accessibility for borrowers.

Undercollateralized Crypto Loans

Undercollateralized crypto loans represent a middle ground between fully collateralized loans and uncollateralized loans. In undercollateralized lending, borrowers are required to provide some collateral, but the loan amount may exceed the value of the collateral. This allows borrowers to access larger loan amounts while still maintaining a degree of security for lenders.

One example of a platform offering undercollateralized crypto loans is Nexo, a centralized lending platform. Nexo allows borrowers to obtain loans with a loan-to-value (LTV) ratio of up to 50%, meaning they can borrow up to 50% of the value of their collateral assets.

Peer-to-Peer Lending

Peer-to-peer (P2P) lending platforms enable borrowers to obtain loans directly from individual lenders without the need for traditional financial institutions. These platforms connect borrowers with lenders, facilitating loan transactions based on mutually agreed-upon terms.

Compound Finance is a prominent example of a P2P lending platform in the crypto space. Based on the Ethereum network, Compound allows users to lend and borrow various cryptocurrencies, including ETH, by supplying their crypto assets to liquidity pools and earning interest from borrowers. By cutting out intermediaries, P2P lending platforms offer competitive interest rates and flexible borrowing options.

Margin Trading Loans

Margin trading loans enable traders to leverage their positions in the market by borrowing funds from exchanges. While margin trading loans typically require collateral, they offer greater flexibility and accessibility compared to traditional loans. By using leverage, traders can amplify their trading positions and potentially increase their profits.

However, margin trading loans also carry higher risks, as traders may incur significant losses if the market moves against their positions.

Homepage of eToro

Conclusion


While crypto loans without collateral provide a convenient option for experienced traders and institutional investors, they come with significant risks and are not easily accessible for the average crypto user.

It’s essential for borrowers to carefully evaluate their options and consider alternative types of crypto loans that offer more security and accessibility. By understanding the risks and benefits associated with different loan types, crypto users can make informed decisions that align with their financial goals and risk tolerance.

FAQs

Is it possible to get a crypto loan without collateral?

Yes, you can obtain a crypto loan without collateral through certain platforms like Atlendis offering uncollateralized or undercollateralized lending options.

Can I borrow from Binance without collateral?

No, Binance offers margin trading services that allow users to borrow funds with collateral but not without collateral.

How do you get a flash loan?

To obtain a flash loan, users typically need to interact with decentralized finance (DeFi) platforms that support flash lending, such as Aave or Compound, and have a solid understanding of smart contract execution.

What is the best type of crypto loan?

The best type of crypto loan depends on individual needs and preferences, with options ranging from collateralized loans for security to uncollateralized loans for flexibility.

References

  1. Flash loan attack hacker steal $182 million (CNBC)
  2. Tugende begins to repay Goldfinch crypto loan following default (Techcrunch)
  3. Three Arrows defaults of $670 million crypto loan (CNBC)

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