What is BNB?
Initially, the creation of the Binance coin did not pursue any super-tasks. BNB was not intended to become a faster alternative to the Bitcoin payment system, as it was positioned, for example, in Litecoin. The idea was simply that it would be the internal currency of the Binance exchange, which can be used to pay for services.
That simple idea evolved into something mind-blowing, BNB. Binance users can pay part of the fee using BNB (Binance’s native token). The BNB fee discount is valid for 5 years from the launch of the exchange (July 2017); at the moment it is 25%.
What is a BNB-backed loan?
With the development of the digital industry, the scope of virtual coins has also expanded. In 2024, any user can take a loan secured by cryptocurrency. It’s fast, easy, and sometimes cheaper than going through the bank. Transactions take place in P2P format without intermediaries. This is an example of crypto lending focused and built on BNB-backed loans. Likewise, as it was positioned, for example, in Litecoin loans.
Binance has created an opportunity for its users to use the Binance (BNB) coin as collateral. In return, the client receives cryptocurrency or fiat money. Borrowed funds can be used to replenish liquidity or spent on other purposes.
The user places an asset on a deposit smart contract. In return, the system (direct lender) issues a digital or fiat currency at a certain percentage. The user repays the loan in equal installments or pays the entire amount at a time. After the full settlement, the asset is unlocked, and it can be withdrawn.
According to the Coinloan review, the lending service on the exchange will appear in 2020, and truly it did. Loans on Binance are issued in USDT and BUSD stable coins. BTC and ETH are accepted as collateral. Coins can be used for trading on the platform or withdrawn to a wallet. Financing is provided for a period of 9 to 180 days.
How to get a BNB-backed crypto loan
To take a loan in cryptocurrency is enough to provide another digital asset as collateral. But before agreeing, it is worth assessing the risks and considering the factors that determine the main terms of the transaction. A loan secured by cryptocurrency will help you get additional liquidity without having to sell assets.
Digital currency is a highly volatile asset. To assess the current state of collateral, clients of lending platforms use various tools to calculate their loan-to-value (LVT). The reciprocal of the percentage risk assessment is the capital amount of the collateral. With an LTV of 50%, it is equal to 200% of the funding amount. This indicator helps to understand the state of collateral assets in the event of a fall in exchange rates.
In traditional bank loans, the rate is set for the entire period of the contract. Interest is not reduced in case of early fulfillment of obligations. To receive a predetermined profit in full, banks use a system of penalties.
Whereas, loans secured by cryptocurrencies can be closed ahead of schedule at no additional cost. For example, on Binance, a trader pays interest on the actual hours they use borrowed coins.
At Nexo, the pre-payment interest rate is calculated in proportion to the number of days. According to BlockFi review, other platforms like Nebeus, Coinloan, and other popular platforms use a similar system.
On Youhodler, with their crypto-backed loan service, you can borrow BTC, USDT, USD, EUR, GBP, or CHF only. That means if you want to borrow BNB, you first must convert one of the above to fiat and convert it to BNB using our exchange service. Most people have a question asking; is Youhodler legit? The answer is yes, they are.
You can also get borrow Binance coin on Nexo. This has proven to be true on several occasions. This satisfies another question asked in the crypto community: Is Nexo safe? What you have to do is top up the BNB coin and you are eligible for the credit because it gets open/available as soon as it has been credited.
How to borrow BNB
Over time, the world of cryptocurrencies has become increasingly diversified. The idea of having a decentralized digital currency was revolutionary when Bitcoin (BTC) was introduced in 2009, paving the door for subsequent projects like Ethereum (ETH).
The establishment of decentralized applications (DApps) permitted the rise of decentralized finance (De-Fi) in the Ethereum blockchain, a crypto project founded by Vitalik Buterin, which has become highly important in 2020 and 2021.
As a result of this type of platform, cryptocurrency loans are now possible. Centralized platforms like Binance and Aave can also be used to request BNB credit.
Decentralized platform, Aave
Aave is the most widely used decentralized finance (De-Fi) DApp on the market. ETHLend was formed in 2017, and a year later it changed its name to what it is now. Originally only available on the Ethereum blockchain, this platform has been available on the Polygon (Matic) network, the most popular Ethereum Layer 2 solution, since 2021. This is critical because commissions in Polygon are almost non-existent, and transaction validation takes far less time.
As a result, instead of the ETH required to operate on the Ethereum Network, you’ll have to pay fees in MATIC tokens.
We can deposit many currencies in each of the two possibilities, resulting in an annual return rate of more than 20%. In other words, whether we request the loan or not, we will earn passive income by handing over our cryptocurrency. Following this, we can seek loans in a variety of currencies, with fixed or variable interest rates.
Binance, a centralized platform
In terms of daily transaction volume, this platform is the world’s largest centralized exchange (CEX). Different investing options, like staking, setting savings accounts, and, of course, asking for crypto loans, are available at Binance. It is one of the notable bitcoin loan platforms.
They will have to complete the Know Your Customer (KYC) verification process because it is a centralized platform, thus they will have to confirm the account with their personal information. You will also not receive passive earnings on your collateral, unlike on Aave and Venus.
In any case, for those who are not interested in opening a cryptocurrency wallet and distrust decentralized platforms, Binance’s option is quite good, since they can guarantee many cryptocurrencies and define the term of the loan from 7 to 180 days.
This financial service is convenient for those who need liquidity but are not interested in selling their cryptocurrencies, as they trust that over the years they will increase in value.
Platforms specialized in crypto loans, on the other hand, provide a wonderful opportunity to earn passive income by giving away our coins. The major advantage of De-Fi apps, as they’ve seen, is that our guarantee will drive demand, which is not the case with Ce-Fi. Of course, they will not have to pay commissions for depositing, seeking a loan, or withdrawing our funds in the second situation. The principle of loan allows for all of this. It is very similar to the classic one, with the exception that instead of fiat currency, an investor lends cryptocurrency on a platform. Borrowers use several services to obtain crypto loans for trading or other purposes. In exchange for the amount they lend to borrowers on any decentralized platform, investors receive crypto dividends.
Each lending platform like Ethereum lending has different rules and rates, but the process is the same across all lending platforms.
Advantages and disadvantages
The benefits and disadvantages of BNB loans are listed below. Binance, an exchange lending service, will launch in 2020. Binance loans are issued in USDT and BUSD stable coins. As collateral, BTC and ETH are accepted. Coins can be traded on the platform or transferred to a wallet. Financing is available for periods ranging from 9 to 180 days.
Some of its advantages include:
Accessibility: Binance and BNB are easy to reach because they are backed by a wide range of devices and software platforms, including Android, iOS, Windows, macOS, and others.
Discounts on trading: Of course, the main reason so many people use BNB is to take advantage of discounts on Binance trading fees. This is a major factor in the utility of BNB and the rise of its value.
Pairings: As the world’s biggest crypto exchange, Binance offers a wide array of altcoins for trading, allowing users to pair BNB with a diverse range of coins and tokens.
Disadvantages
Risk of Liquidation: If the value of your collateral drops underneath the standards, you’ll need to add more liquidity; otherwise, your lender faces liquidation.
Loan-to-value (LTV) Ratio: This ratio compares the value of your loan to the market value of its collateral to determine risk.
Late repayment: Borrowers who default on their payments will be liquidated and charged a liquidation fee. The charge on a Binance Loan is 2% of the entire amount borrowed.
