What is Crypto Lending?

Are you looking for a good way to earn passive income with crypto without risking your assets in trading? Crypto Lending is one of the best ways to do this.

Rather than stashing your crypto in a wallet and leaving it to give you gains only when the price increases, you can choose to join a lending platform and finance crypto loans for interest.

Crypto Lending is quite similar to traditional bank lending, except in this case, you aren’t lending or borrowing with Fiat currency but with crypto.

In this article, here’s everything you need to know about crypto lending and how to start lending or borrowing crypto.

 

How crypto lending works for lenders

 

Lending your crypto asset is easy. All you need is a good crypto lending platform with a reasonable interest rate for maximum profit. Some of the best crypto lending platforms with good interest rates include but not limited to OKX and Nexo. Their rates range between 0-15%.

Once you deposit and accept to loan your assets for a specific loaning period, your assets are then transfered to a loaning pool where borrowers can come get it and pay back interest. The whole process is automated by the smart contract, including getting your money on or before the end of the lending period. 

While crypto lending can be safer than trading, it’s not highly profitable for investors with small portfolios.

How crypto lending works for borrowers

To borrow crypto through a crypto lending platform, you need collateral just as you would in a traditional bank loan, except that this collateral is your crypto assets.

Your crypto assets used for collateral will be locked up while the loan is paid to you. If you fail to repay the loan and interest on or before the lending period, your collateral will go into the pool.

But how do you prevent people from leaving without paying the loan? Many crypto exchanges that offer crypto loans like Bybit, OKX, etc, don’t allow borrowers to spend loans outside the exchange.

To ensure you’re able to repay the loan, you must choose a crypto lending platform with low interest rates.

 

How to choose a crypto lending platform

 

The crypto lending platform you choose, will determine your experience lending or borrowing crypto. So, here are seven things you must consider before choosing one.

 

1. Interest Rates

 

Top on the list and the most important factor is the interest rate by which you are borrowing or lending crypto.

As a lender, you’ll normally be looking platforms with high interest rates to get the best out of your investment. Most crypto lending platforms like the ones discussed in this article, have their interest rates between 0%-15%. Opt for the average as you can find the most activity there.

Borrowers look for low interest rates to make it easy to repay loans.

2. Costs: 

 

Another thing you should consider is the fee variation across different crypto lending platforms for specific crypto assets. Compare and contrast between platforms. This way, you can find the best rates and maximize your potential returns. 

Remember, you’re not limited to using just one platform – you can choose different platforms for different cryptocurrencies based on their fees and offerings.

 

3. Risks:

Crypto lending, like any financial investment scheme has some risks. Since crypto is a relatively new and attractive target for hackers, choosing a platform that prioritizes safety is crucial. 

When comparing platforms, check out their website to see what security measures they have in place. This could involve two-factor authentication, user fund insurance, and a proven track record of fending off cyber attacks.

 

4. Loan Duration: 

 

The loan duration refers to whether the loan has a fixed term, meaning you’ll have to repay it by a specific date, or if it’s flexible, allowing you to repay it at your convenience.

When choosing a crypto lending platform, it’s important to understand the lending terms, specifically the loan duration. 

5. Collateral Requirements:

This is important for borrowers. You should aim to risk responsibly by looking for lending platforms that offer loans with the least collateral. 

Your collateral will be calculated based on the amount you want to borrow but the calculation rates differs from platform to platform. 

Ensure you compare various lending platforms so you can find the platform that offers the most favorable loan terms, meaning you can borrow the amount you need with the least amount of collateral put up.

 

6. Minimum deposit limit: 

Before you decide on a crypto lending platform, check if they have a minimum deposit amount. This will help you avoid surprises and ensure you meet their requirements to start earning interest on your crypto.

 

7. Geo-restrictions: 

Unfortunately, crypto loans are unavailable in some locations, so check your eligibility requirements before signing up. 

Additionally, you’ll encounter two main crypto lending platform types: automated and manual. 

Automated platforms handle the lending process for you, making them a convenient option for many users.

 

Crypto Lending Platforms In 2024

1. OKX