What can a DeFi loan be used for?

Asked 2 years ago

Hi all. Could someone please help me understand what a DeFi loan can be used for? Thanks!

Fletcher Hernandez

Monday, April 25, 2022

Margin trading is the biggest if not the only reason why people take DeFi loans. It allows you to open positions beyond the current value of your assets. Why do I need to take a loan when I can simply sell-off my crypto and do whatever I want with it?

1. There is no collateral schedule, and you do not have to make payments like you do with centralized finance loans which means you can wait for crypto to go up and settle the debt using your profits.

2. If you do not make any payment and crypto goes down to zero, you only have the value of your collateral to lose. So you can imagine this seems like making money out of thin air right? Perhaps so, and no one is also going to to reduce your credit score. Absolutely no one!

3. Also, you do not have to go through your bank manager and follow all that long process which may end up with you not getting the loan in the first place. DeFi loans are painless and can be gotten in less than 10 minutes if you meet the basic criteria.

4. You also use DeFi loans to buy assets when they are falling in price. This is a very intelligent way to manage your money in crypto. If you bought Bitcoin, and the price of the asset falls, you can take a loan using your available Bitcoin as collateral so that you can buy more Bitcoin and possibly settle the loan when the price comes back up.

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