If you have been considering a different way to earn on the crypto you HODL, then lending is the ideal way for you. Cryptocurrency lending allows you to invest your assets in a setting that is very much similar to a conventional bank.
If you invest your crypto by lending it out or are familiar with the ecosystem, there are some metrics to look out for. You have to ensure that the platform you use is safe and secure. You can measure security based on the regulatory atmosphere surrounding that platform and the storage it uses for your funds. This will help to protect your funds much later.
A cryptocurrency lending platform allows you to earn interest on your digital assets. It loans your funds to borrowers who repay with an interest rate. Rates can be between 8 to 12%, providing a much higher return than traditional banks. Lending platforms equally enable borrowers to invest in the crypto market while using their funds as collateral.
When investing your crypto through lending, you have to consider the variety of platforms. Centralized finance (CeFi) platforms are controlled by a designated entity while decentralized ones operate autonomously.
One of the major benefits of centralized finance is that users can make easy fiat-to-crypto conversions. Because this kind of transactions require the involvement of an identifiable authority, centralized finance platforms are your best bet.
Also, there is the availability of customer support. CeFi platforms are essentially companies that fulfill services on behalf of their customers. Thus, if the ability to talk to a professional about any issues is important to you, then CeFi is a great place to get that.
In addition, CeFi platforms offer more accountability regarding your funds. They are regulated, provide insurance cover, and will often have been active for a longer period. You can therefore assume that your funds receive better protection under centralized finance.
However, on the flip side, CeFi platforms may offer lower interest rates. Due to the high fees they pay to middlemen, the reflection on the customer end is in form of lower returns. You also need to transfer control of your account to the platform, making it undesirable for privacy enthusiasts.
When using DeFi, a prominent quality is the execution of tasks through independent tools known as DApps. In the absence of a central authority, these resources help to complete payments and other transactions. DeFi platforms increase financial inclusion by dismissing the need for credit checks and KYC protocols.
Also, since DeFi platforms circumvent the need for middlemen with their innovative infrastructure, transaction costs are lesser. This means that you earn interest up to 12% on your assets.
However, a disadvantage of DeFi is the plethora of tools users have to understand. These can be confusing and may create problems if you are new to the platform. Also, you confront the risk of losing your funds if the DeFi security architecture is breached.
Take a look at pros and cons of each type in short comparison tables:
Centralized Finance
Benefits | Risks |
Accountability for customers’ funds | Lower interest rates |
The presence of customer support | Controls private keys to individual accounts |
Flexibility across independent blockchains |
Decentralized Finance
Benefits | Risks |
Trustless, permissionless. Allows users full control of their accounts | Complex, especially for beginners |
Removes barriers to financial inclusion | Little or no regulatory oversight |
Innovative products can counter some of its shortfalls | Absence of customer service |
CoinRabbit is a crypto lending platform that came on board in 2020. It intends to increase access to funds for investors and borrowers and is throttling to become a major leaguer. Currently, the following are the platform’s specifics:
CoinLoan is a platform established in 2017. It is headquartered in Estonia and, asides from its regulation under the Estonian Financial Authority is licensed by five other agencies. The following are details about the platform:
Celsius is a platform that is specifically appealing to beginners. It provides intuitive resources which allow fresh investors to blend into the crypto space. In terms of lending, the app offers some exceptional benefits which are listed below:
BlockFi is a US-based platform that can be configured for many purposes. Users can operate a BlockFi account for both business and personal reasons. Not only is the platform regulated, it takes extra measures to ensure the security of its investors’ funds. Here are some benefits:
YouHodler was established in 2018, with headquarters in Cyprus and Switzerland. It is well regulated and offers an easy-to-use interface for beginners. Also, the platform is a go-to for investors seeking top cryptocurrencies and a high LTV. The following are some of its perks:
Founded in 2019 by Juntao Zhu, a Singaporean, the Fintech company enables customers to earn on their crypto assets. It offers six trading pairs, including some of the top cryptocurrencies on the market. The following are perks of using Hodlnaut:
Aave is one of the most innovative platforms in the DeFi space today. Founded in 2017, it was initially modeled after the Ethereum blockchain. Aave is now a major competitor, spearheading creative additions to decentralized finance. Below are some of its features:
Compound Finance is another interesting platform in the DeFi world. It has a diverse suite of products that users can leverage to make good their goals.
If there is one thing that distinguishes this project, it is the different approach it brings to crypto lending. Here, loans repay themselves rather than the other way round. We have compiled a few benefits of using Alchemix:
This article has discussed cryptocurrency lending and the most ideal platforms to approach. We have also focused on angles such as security, regulation, and interest rates. However, it is important to conduct further research on your preferred, to learn all there is to know as an investor.
Not financial advice. Do your own research and take everything moderately.
Crypto-backed loans have their own risks that should be taken respectively.
The cryptocurrency market is known for its volatility, with prices of digital assets experiencing dramatic… Read More
As we head into 2025, the cryptocurrency market continues to be one of the most… Read More
With so many new crypto terms, it’s easy to feel overwhelmed by the constant flow… Read More
In the world of both traditional and digital finance, understanding the collateralized loan and the… Read More
Crypto loans have become an increasingly popular financial tool for investors and traders, offering a… Read More
The world of cryptocurrency investing can be overwhelming, especially when you're first getting started. One… Read More