One of the most interesting qualities of cryptocurrency is how there are multiple avenues to make money. Investors seeking to earn substantial profit can do so without engaging in trades. In this article, we discuss cryptocurrency lending, including its history, how it works, the perks of lending your crypto, and a variety of other things you need to know.
Table of contents
Cryptocurrency lending originated in 2020, during the early days of the coronavirus. Due to the effects of the pandemic, banks cut interest rates, forcing people to find alternative ways to earn on their money. In response to this, the crypto market emerged with a lending solution. There, investors could take advantage of attractive rates while retaining full ownership of their cryptocurrency.
Today, crypto lending is pretty much the norm. Rather than the timeworn method of HODLing to make a profit, asset owners can put their tokens to work. Borrowers can also expand their portfolio, gaining more from the tokens they collateralized.
A straightforward way of understanding crypto lending is to consider the format of bank loans. There, your bank uses money from your savings account and rewards you with a certain amount of interest. Similarly, cryptocurrency platforms lend your assets to borrowers who pay interest on the loans they take. Part of this interest is returned to you. Unlike traditional banks which pay a very minute sum, you earn a lot in interest. Lenders can earn as high as 8 to 12% interest on their funds.
In even simpler terms, three parties exist in a crypto lending relationship in CeFi. The first is the lender who has assets they would like to earn on. The second is the borrower who needs funds for an endeavor. While the third is the platform that can link both individuals with each other.
In taking a cryptocurrency loan, be sure to remember that they are always overcollateralized. This means that due to the volatile nature of the crypto space, you put up more collateral than the loan you intend to take. Your loan will often be no more than 70% of your collateral.
The following are reasons why you should lend your crypto:
Cryptocurrency lending has several common use-cases: reinvesting, short-selling, diversification, daily purchases, and many more:
To choose the right platform, you need to understand its types. There are centralized finance platforms and decentralized ones. Centralized finance, otherwise called CeFi, are platforms that basically require you to submit your personal details. They hold your private keys and retain substantial control over your transactions.
Decentralized platforms, on the other hand, operate on a permissionless basis. You have full control over your account and execute processes using applications built on the blockchain. While DeFi platforms are liberal, CeFi offers you the benefit of regulatory oversight.
Centralized Finance Platforms Compared
| BlockFi | Nexo | Binance | CoinRabbit | |
| KYC process | Yes | Yes | Yes | No |
| APR | 4.5% | 12% on fiat currencies, 6.9% starting point. | Depends on the token | 14% |
| Loan terms | 12 months | 12 months | 7, 14, 30, 90, and 180 days available | Unlimited |
| Minimum deposit | $0 | Depends on the token | $0 | $100 |
| Currency pairs | Few, including, BTC, LTC, GUSD, ETH, USDC | 3 fiats, 6 stablecoins, and 11 cryptocurrencies | Over 50 | 12+ |
Decentralized Finance Platforms
| Compound | Aave | |
| KYC | No | Yes |
| APR | 1.36% – 31.96% | Depends on the token, it ranges from 1% – 15% |
| Loan terms | Borrowers can end loan at any time | Unlimited |
| Minimum deposit | None | |
| Currency pairs | ETH, DAI, BTC, USDC, BAT, SAI, REP, WBTC | 12 |
There are several crypto lending parameters that should be understood and constantly kept in mind: LTV, APR, loan time frame, liquidation and liquidation price.
While being a powerful tool crypto lending as any other financial activity has several risks strictly connected with it:
At CoinRabbit we created a comprehensive solution to provide you with the best crypto lending experience.
The process of lending crypto at CoinRabbit is very simple and easy. Literally, a few clicks to get your funds. You don’t have to browse through the whole website to learn what to do.
It takes under 10 minutes to receive your USDT/USDC loan. Forget about waiting for your funds for hours.
We do not identify our clients, we do not know where you are from and who you are. We just need your phone number or email. In most cases passing KYC is not needed (required for the cases when the funds can’t pass AML security level).
This article has covered all the important bits about cryptocurrency lending. But to ensure that you get the best value, research adequately on the platform’s fee structures and the token you wish to invest in. This will determine your profits in the long run.
Crypto lending solutions became a great tool to adopt any cryptocurrency market conditions, let it be a growing, dumping, or stable market, and provide new ways of increasing your wealth.
Reconsider your financial activity and choose between crypto-backed market loans and Earnings to amplify your holdings and make any price swing more convenient.
Not financial advice. Do your own research and take everything moderately.
Crypto-backed loans have their own risks that should be taken respectively.
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