How does one provide Bitcoin or Ethereum collateral? Wouldn't you have to give away your private key (maybe in escrow), or transfer coins to them?
Why wouldn't you just sell your coins at full value instead of using this "loan"?
You're not selling the coins, you're pawning them.
Also you wouldn't have to pay capital gains tax in countries that require that on crypto sales.
- People hope that the value of the underlying coins will rise in the meantime. (It may, of course, also fall but crypto enthusiasts usually don't worry too much about that)
- Quite often the volume available is not that high for many coins, so if it hovers around (say) USD 100 per coin but you want to sell 10 million coins, you would not be able to get 100*10 million is 1 billion USD for them. The market simply can't absorb that much, but if you use the coins as collateral you won't "sell" them and thus won't impact the market price.
- Selling things of value can have tax implications in certain jurisdictions, which you can avoid by lending against those things instead.
Why not sell half of the crypto assets instead? On the assumption that suddenly your crypto can go to the moon?! It might equally well lose its value...