DeFi loans: connecting traditional finance with crypto

Skyline Digital is invested in creating a unique financial platform to cover all of its customers’ needs, while simultaneously bridging the gap between traditional financial banking institutions and new decentralized solutions.

As DeFi loans are more broadly implemented, with platforms such as CoinLoan registering a 2000% increase in crypto-backed loans in 2021, the need for tools that facilitate the access to these types of loans becomes unequivocal. This trend reflects the increasing demand among High Net Worth Individuals, companies, and foundations to utilize their on-chain assets for fiat liquidity while safeguarding their crypto portfolios.

Skyline Digital has introduced a new feature designed to help users maximize the value of their crypto portfolios through DeFi loans. This feature allows customers to access competitive loan offers directly from top DeFi protocols like Aave and Spark, with the option to convert loan proceeds into fiat for payments or digital asset swap.

During the loan setup process, interest rates are conveniently displayed on Skyline Digital’s platform. The net Annual Percentage Yield (APY) is visible on the main screen, and users can explore more detailed options by selecting “Advanced,” where they can view different interest rates across various tokens.

All DeFi loan terms, including interest rates, are provided directly by the DeFi protocol, and repayment is handled directly with them at any time. Skyline Digital does not intermediate the DeFi loan nor act as lender, therefore it does charge any fees or intervene in the DeFi loan repayment process.

Main benefits of DeFi Loans

DeFi loans are in increasing demand by investors and holders, as they create the best conditions for them to manage their portfolio with more flexibility and ensure liquidity without losing the previous investments made.

The main advantages of DeFi loans are:

Liquidity without selling assets

‍Users can maintain their portfolio and obtain liquidity for their daily uses or real-world asset investments. This allows them to potentially benefit from future value increases when it comes to certain cryptocurrencies, yielding higher returns.

Transparency‍

As an on-chain transaction, all fees collected by the DeFi protocols are transparent and decentralized, ensuring compliance and security, and eliminating many inefficiencies of the traditional banking systems.

Tax benefits

‍In many jurisdictions, selling crypto assets may trigger capital gains taxes. By taking out a DeFi loan, users may access liquidity without incurring in a taxable event.

Low interest rates

‍DeFi usually offer competitive interest rates that are lower than traditional banking options such as personal loans or credit cards.

Flexibility and speed

‍The process of obtaining a DeFi loan is typically faster and more flexible than traditional loans. Users can choose the amount of collateral, set the repayment terms, and access funds quickly, without the need for credit checks.

Dissociation from traditional banking

‍Unlike traditional banks, DeFi loans are based on collateral as the sole assurance for the borrower's credit-worthiness, while other credits might recur to credit scores to evaluate the liability of a client.

How does it work?

To access this new feature, you must be fully onboarded on Skyline Digital’s platform, having previously completed the Know Your Customer (KYC) or Know Your Business (KYB) verification process and comply with our Terms and Conditions.

Our DeFi loan feature is smoothly integrated into your regular payment and exchange process, making it easy and flexible to access. Here’s a quick guide:

1. Choose Your Service: Start by selecting the service you want to use, such as “crypto to fiat.”
2. Add Payment Details: Enter the specifics for any payments you wish to make. You can include multiple currencies and beneficiaries if needed, for greater convenience.
3. Proceed to Payment Options: Once you’ve added all your payments, click “Continue.” In the popup, select “Pay with DeFi Loan” as your payment option.
4. Set Loan Terms: Customize your DeFi loan by entering your loan terms. You’ll be able to review important details like collateral requirements, Health Factor, APY, and more. For added flexibility, use the Advanced configuration to explore different providers or adjust your collateral and stablecoin options.
5. Sign the Transaction: Use your wallet to sign the DeFi loan transaction. This secures the collateral with our smart contract, ensuring a safe and efficient process.
6. Confirm and Finalize: Take a moment to review all details, then accept the final quote. You’re all set!

How is the Health Factor Calculated?

The Health Factor on a DeFi loan is a crucial numeric indicator of the perceived safety of the collateral cryptocurrency relative to the borrowed amount. This is a fundamental step to help monitor the risk of liquidation for providers to ensure loan maintenance, with a value above 1.0 considered safe.

The calculation is based on the weighted average of the liquidation thresholds of the collateral assets and the total borrowed value using the following formula:

This ongoing analysis allows users to monitor the status of the collateral and make adjustments as needed to avoid liquidation.

When the Health Factor falls below 1.0, the borrower’s position may be liquidated by the DeFi loan provider to maintain solvency.

Why choose Skyline Digital for DeFi Loans?

Skyline Digital aims to be the all-in-one financial platform for underbanked High Net Worth Individuals, Web3 corporations, and foundations, enabling a wide range of financial operations within a single, convenient platform.

What sets us apart is our dedicated support team of experienced professionals, available on our Telegram channel to provide fast, accurate assistance whenever you need it.

Security and compliance are top priorities for us. As a regulated entity registered as a VASP and financial intermediary with VQF, an SRO supervised by FINMA in Switzerland, we adhere to rigorous asset security and anti-money laundering (AML) best practices.

For DeFi loans, we’re building valuable partnerships with leading providers like Aave and Spark, allowing users to select the best loan options available. Our platform makes it simple to compare rates and terms across providers, offering a transparent process with competitive fees.

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Ready to explore what we have to offer? Sign up today or reach out for more information.

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This post is intended for informational purposes only and does not offer financial, legal, or investment advice. Skyline Digital does not provide personalized financial advice and encourages users to consult with professionals before engaging in DeFi lending or borrowing.