Cryptocurrency loans can be divided into two broad categories

Custodial (CeFi) crypto loans

In the case of centralized finance (CeFi) crypto loans, a centralized authority takes control of your collateral. CeFi loans are custody loans, where the borrower does not have access to the collateral assets. The lender tends to be a specific centralized authority that gains full access to your collateral.

Non-custodial (DeFi) crypto loans

In the case of decentralized finance (DeFi) cryptocurrency loans, there is no central authority that controls the loan conditions. Smart contracts do all that work. On DeFi crypto lending / borrowing platforms, you can get loans in various cryptocurrencies or stablecoins. The advantage of lending in decentralized finance is that they are accessible to anyone because they are hosted on the blockchain, where everything is transparent. There are no verification processes to go through on DeFi platforms, and even the interest rates for borrowing are likely to be less than on CeFi platforms.

If you find yourself on the lender's side on decentralised platforms, you don't have to worry about repaying the loan. Smart contracts take care of everything.

PROs

• Crypto loans are available to everyone
• In case you have decided to take a crypto loan, there will be no registration required with any regulator or government agency
• Quick and easy to get additional passive income
• You can get a cryptocurrency loan instantly
• Option to choose from a wide range of cryptocurrencies in which you receive the loan
• Interest rates for borrowers are significantly lower compared to traditional loans, sometimes even negative
• There is no bias in decision making. Whether you get a loan depends entirely on financial factors. No one is denied a loan because of race, gender, religion or any other protectable characteristic.
• All crypto loans are permanently recorded on the blockchain, increasing transparency in the cryptocurrency sector

CONs

• The use of crypto lending carries a number of risks, such as sudden dips in the cryptocurrency market, smart contracts exploits, rug pulls, regulatory intervention, etc.
• There is a lot of fraud going on in the cryptocurrency world, and even though many of these platforms are audited, an audit does not guarantee security; it merely points out flaws in the platform's code, if the auditor discovers them.
• Cryptocurrency lending is unregulated. Your money is not protected by any financial regulators, such as e.g. FDIC.
• When the value of your collateral decreases, your lender issues a margin call, to which you must respond by increasing your collateral. If you fail to do so, your collateral will be liquidated, or at least the part of it required to meet the pre-determined LTV (loan to value). If this happens, you will suffer a loss, but the borrowed assets will remain.

What are the risks associated with crypto loans?

With cryptocurrency loans, compared to those of the traditional world, there is no insurance in case something doesn't go as planned. If there is any problem in this sector and you lose your assets, you alone bear the responsibility and can blame no one else.

1. Technical risks. Everything that takes place on the platform happens in a digital world that is controlled by smart contracts. Smart contracts on blockchains are publicly available and their code can be checked by anyone. It is these codes that are checked by many reputable companies to help ensure the security of their code. Despite this checking, which is called auditing, it is possible for a hacker to be the first to find flaws in the code that auditors were previously unable to predict, allowing them to take control of the protocol,your digital assets, or both!
2. Liquidity problems. This problem can occur if there is a big dip in the markets and most borrowers stop repaying their loans, or in the event of a platform exploit.
3. Crypto lending platforms are forced to set liquidation levels. Liquidation levels are used to avoid the illiquidity problem during a market crash or dip. If the value of a crypto asset drops to a certain value when the LTV (Loan To Value) is already too high, the platform will order the borrower to increase the value of their collateral, otherwise they will have to face liquidation. If the borrower doesn't comply with the order to increase the collateral, the platform liquidates sufficient collateral already deposited to bring the borrower's LTV back to the approved ratio.

Conclusion

Crypto lending / borrowing is a great way to earn crypto dividends and interest payments using the cryptocurrencies you hold, or alternatively, to provide them as collateral against which you can take a loan. In this sector, you have the option of participating as a lender or even as a borrower. In case you have a good strategy, you can also earn good profits from this area of cryptocurrencies. However, beware of possible scams and always diversify your investments carefully.

Personal Opinion

Crypto lending / borrowing is a truly great technology that I actively use myself. If you set the right investment strategy, cryptocurrency lending opens the door to multiplying your profits in decentralized finance. The big advantage of this sector is that you can remain anonymous, which is very important to me, and that is exactly what cryptocurrency loans can provide.
However, I'm still not sure if I would want to leave a larger portion of my digital assets as collateral on a decentralized platform for the long term, because I know there is still a chance of my assets being stolen. Always keep in mind that the moment you move your cryptocurrencies to any lending platform, you no longer own them. If you have provided your cryptocurrency to the platform, you will receive a bond issued by a smart contract in exchange for it. You only become the true owner of your digital asset when it is sitting in your cryptocurrency wallet.
That's why you should beware of the many scams that are still happening in the cryptocurrency world. Platforms are regularly created with the aim of scamming you with the intention of stealing your cryptocurrencies, so before you use one, do a full research to check who is behind the development of the project, what the developers' history is, and if they have KYC. Study the whitepaper and check the code audit reports. You should never underestimate the role of cybersecurity, because even one incident - e.g. a bug in the code and a subsequent hacking attack on the platform can destroy the future of the entire project, you can lose money, which will greatly affect the motivation of users to continue investing their money and time in digital assets and Web 3.0. Always be prepared to accept a certain amount of risk and diversify your investments wisely. Your main task is to ensure that you are earning consistent profits for the minimum possible level of risk. Always DYOR!