Getting an Ethereum-backed loan allows you to unlock liquidity without needing to sell your Ethereum. This guide goes through the top Ethereum loan providers along with the pros and cons of each platform.

What is Ethereum (ETH)?

Ethereum is a decentralized, open-source blockchain platform that enables the creation of smart contracts and decentralized applications (dApps). Unlike Bitcoin, which primarily functions as a digital currency, Ethereum's native token, Ether (ETH), fuels a vast ecosystem of financial services, games, and digital assets.

Why Take Out an Ethereum Loan?

Ethereum loans provide immediate access to funds while maintaining exposure to potential future appreciation. It is also tax-efficient since it avoids triggering capital gains taxes associated with selling Ethereum at a profit.

Individuals often borrow against their cryptocurrency to make other forms of investments, cover expenses, or consolidate other forms of debt, mirroring the use cases of a traditional loan.

For more information, check out our post on why people take loans against their crypto.

Types of Ethereum Lenders

There are two primary types of Ethereum lending platforms: centralized and decentralized.

Centralized platforms require users to send collateral to them. These platforms typically provide user-friendly interfaces with direct customer support from the team. Additionally, centralized platforms offer more flexibility, allowing users to receive loans in fiat (USD) or stablecoins (USDC/USDT).

Decentralized platforms, instead operate via smart contracts, eliminating the need for intermediaries. It is important to note that DeFi loans typically offer variable interest rates and are only paid out in stablecoins like USDC or USDT, not fiat currency.

For a deeper understanding, don’t miss our guide on CeFi vs DeFi.

Ethereum Loan Risks

While Ethereum loans offer many benefits such as liquidity, they also come with unique risks. Understanding these can help you borrow responsibly:

1. Liquidation Risk: Crypto volatility is a double-edged sword. Despite increased stability, sharp price drops can still occur. If your collateral's value falls below the loan-to-value (LTV) threshold, it can be liquidated, often at unfavorable prices. Mitigation strategies:

   • Over-collateralize (e.g., 200% instead of the minimum 150%)

   • Set up price alerts to monitor your collateral

   • Choose platforms with the best liquidation protection features

2. Smart Contract Vulnerabilities: Ethereum's strength—smart contracts—can also be a weakness. Smart contracts can have bugs or be exploited despite having thorough security audits, putting your collateral at risk. Reduce exposure by:

   • Sticking to well-established, thoroughly-audited protocols that have stood the test of time

   • Considering DeFi insurance if using a new platform

3. Platform Risk: Not all risks are on-chain. Centralized lenders can face hacks, regulatory crackdowns, or mismanagement. The 2022 Celsius collapse is a stark reminder. Mitigation:

   • Research platform history, team, and regulatory compliance

   • Prefer lenders with institutional backing and transparent policies

How to Choose an Ethereum Lending Platform?

Choosing an Ethereum lending platform depends on a few factors such as:

• Security: CeFi lenders should hold your collateral in qualified custody without rehypothecating funds, and DeFi lenders must be audited and should have a strong operating history.

• Loan terms: While loan terms will vary across lending providers, it is important to understand key terms such as loan APR, loan to value (LTV), and payment terms (fixed vs variable interest).

• Reputation: Positive reviews and recommendations from others help confirm the legitimacy of the platform.

• Customer Support: If it’s your first time borrowing against your Ethereum, it may also be helpful to use a platform with customer support.

Best Ethereum Loan Providers

• Arch: Best centralized lender

• Aave: Best decentralized lender

• Coinbase Prime: Best lender for large institutional clients

Arch

Arch is the best crypto lending platform in the US to borrow against Ethereum, Bitcoin and other assets at competitive rates. Arch securely holds collateral with leading custodians in cold storage, never touching your collateral.

Pros

• No rehypothecation

• Collateral securely held in leading qualified custody

• APR: ~16%, LTV: up to 65%

• Same day stablecoin or fiat disbursement into your bank or wallet

Cons

• Only operational in the US

Aave

Aave is the leading DeFi lending platform. They offer users the ability to lend and borrow various cryptocurrencies, including Ethereum, Bitcoin, and other ERC-20 tokens.

Pros

• High Loan-to-Value (LTV) ratio of 73% with low interest rates

• Offers loans against many additional assets as well

• Supports flash loans

Cons

• Difficult to get started for beginners

• Variable interest rates only

• Loan disbursement only in stablecoins, not fiat to your bank account

Coinbase Prime

Coinbase Prime is the institutional offering of Coinbase. While Coinbase recently shut down their retail borrowing program, they provide lending and other financial services to large institutional clients.

Pros

• Supports $10M+ loans for institutions

• Offers bespoke loan terms for large clients

Cons

• Difficult and time-intensive onboarding process

• Don’t support lending for retail customers

• Can’t support smaller-sized loans