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:
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
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
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