By Terry Ashton, updated February 7, 2025
Introduction, Understanding Blockchain’s Role in Financial Services
What Is Blockchain?
Blockchain is one of the newer digital technologies. It is used to store and record ownership of digital assets – essentially, it’s a decentralised distribution network which is very important. That’s because information stored on blockchain cannot be changed and is extremely secure. Quite a few industries have adopted blockchain and in future, blockchain could be used for almost every industry to hold sensitive information and payment information. For the financial world, blockchain is already proving itself invaluable.
Points to consider:
- A blockchain is a decentralised database that holds encrypted “blocks” of data on digital assets. Each time information is added to that particular asset, it creates another block which forms a chain.
- Anything stored on a blockchain is non-transferrable and cannot be copied.
- As blockchains are decentralised, they are accessible in real time to all authorised to view them and add to them.
- Blockchains are completely transparent.
- There are private blockchains and public blockchains.
- The technology involved is suitable for almost every industry sector.
The Importance of Blockchain for Financial Services
Blockchain technology is essential for protecting sensitive information as it significantly reduces security risk and removes any fraudulent activity. It’s also fully transparent – nothing is hidden. Furthermore, blockchain is so sophisticated that it streamlines banking and lending and as the technology is in real-time, it’s able to authenticate documents, applications and credit history, which reduces risk and speeds up operations.
Decentralised Lending Platforms: How They Work
Blockchains are decentralised which means no one computer or one company owns the chain. Rather it is distributed through the “nodes” (computers) that are connected to the chain. The nodes keep copies of the chains and maintain the network. They don’t necessarily have to be computers, there are other devices involved too. Every node keeps a copy of the blockchain. When a block is updated, it is verified across the chain before the update occurs. Every action in each block is checked through the technology so it is completely secure and those involved in the blockchain have their own unique ID number that holds all of their transactions. In terms of the borrowing and lending markets that use blockchain technology, there’s no need for an intermediary, so transactions happen directly between users and lenders. The lenders deposit funds into a lending protocol where borrowers access it.
Traditional lending and even online lenders such as this platform have a longer chain before the transaction is complete – using blockchain technology, the process is far more efficient and as there aren’t intermediaries involved, the costs can be significantly reduced.
Comparing Traditional and Blockchain-Based Loan Models
Let’s compare traditional and blockchain-based loans (otherwise known as Crypto Loans).
Crypto Loans
These types of loans from Halvin Laina are secured through cryptocurrency which is used as collateral. Borrowers deposit their cryptocurrency with a lender and receive currency either in traditional (fiat) currency or they could choose a different type of cryptocurrency. Usually, the loan amount is a percentage of the value of collateral – otherwise known as LTV or loan-to-value ratio.
Traditional Loans
A Vippi traditional loan (including bank loans and online lenders like Laina Heti Tiille) is a financial product that allows borrowers to secure financing either as an unsecured loan or a secured loan (with collateral). The loan is repaid with interest, in instalments for a fixed term. There are many different types of traditional loans, for example, a car financing loan, a mortgage etc
Advantages and Disadvantages of Blockchain Loans: Transparency & Security Vs Traditional Loans
- Crypto loans from use cryptocurrency as collateral whereas traditional secured loans often require an asset such as a house.
- Crypto loans often have lower interest rates whereas traditional loans’ interest rates are based on the loan-type, collateral and the borrower’s credit history (especially unsecured loans).
- Usually, crypto loans don’t need credit checks so they’re more accessible but traditional loans do require credit checks. This makes crypto loans more accessible to those with poor credit history.
- As crypto loans are automated and decentralized, approval is swift whereas traditional loans, depending on the provider, can take weeks to process.
- There’s usually lots of paperwork to complete for traditional loans whereas crypto loans’ applications are easier and shorter.
- Crypto loans (as traditional loans) are still often subject to lending regulations – so consumers are protected.
- Anyone with online access and cryptocurrency can apply for a crypto loan
- There are more loan types available through traditional loans and online loans and in general, traditional loans and online loans (from this website) offer better stability.
- Blockchain loans offer greater transparency.
- Cryptocurrency however is more volatile than fiat currency which means there’s more risk attached to loans
- With cryptocurrency storing, there’s still a risk of hacking and theft, but they are becoming more secure as newer technologies appear.
- Cryptocurrency regulations often change which can alter the loan terms.
The Role of Smart Contracts in Loan Agreements
As well as decentralised financing (sometimes referred to as DeFi) becoming more widely available, Smart Contracts are another technological breakthrough being used for loan agreements. Smart contracts are exactly as they sound – automated contracts (without human intervention) that streamline the process, making it quicker and easier to access financing and other financial services. While they speed up the process, they also reduce overheads for banks and other lenders, decrease the margin for errors and they are completely transparent, which is a key advantage for all parties involved.
Top Blockchain Lending Projects to Watch
Here are 5 blockchain lending projects to watch for 2025:
- Binance Loans, which offers up to 80% (although most assets are capped at 65%). Interest rates are calculated almost in real time, and it is supported by more than 30 cryptocurrencies including the most widely used such as Ethereum and Bitcoin.
- Aave, loans up to 80%, again depending on collateral. This calculates interest rates based on supply and demand and supports most cryptocurrencies, including Ethereum, Stablecoins and Avalanche.
- Compound Finance, loans up to 80% (dependent upon collateral), interest rates are driven by algorithms, and it supports ERC-20 tokens and Stablecoins.
- CoinRabbit loans up to 90% depending on collateral and offers interest rates from 12 to 17% which are calculated every month. It supports more than 70 cryptocurrencies, including Bitcoin, Stablecoin and Ethereum.
- Unchained Capital offers loans of up to 70% but only supports Bitcoin. Its interest rates are 14%+ but this varies according to collateral and term of loan.
Conclusion: The Future of Loans in a Decentralized Economy
Decentralized Finance will continue to change the landscape as it moves further away from traditional finance. In terms of loans, ultimately it should put an end to lending money based on credit scores and geographic location. DeFi continues to be inclusive, without human intervention scrutinizing applications. While the speed is already impressive, as technology improves, the process has the potential to approve applications in minutes, rather than hours. The future will also see greater innovation bringing new, modern financial products. As DeFi offers accessible finance for all, it will help to foster global economic growth, and security will continue to improve over time protecting users from scams, hacking and online theft. DeFi has already grown in sophistication, but we have only just begun to scratch the surface of its incredible potential. For online lending, here are a website that is highly recommended: https://laina.capital/.