Crypto lending is a form of decentralised finance that enables investors to lend their bitcoins to other borrowers. In return, they receive interest payments known as “crypto dividends.” Along with accepting cryptos, many platforms that focus on lending cryptocurrency also accept stablecoins. It is already widely known that using cryptocurrencies as a form of payment is growing in popularity. However, it can also be a fantastic investment opportunity, so there’s more to it than that. Crypto lending enables you to keep the assets without any plans to sell them while they appreciate in value.
Let’s say, for instance, that you have 20 bitcoins. You have the option to put them in a wallet on a cryptocurrency lending site because you want to use them to generate a consistent passive income. As a result, you will earn interest every week or month. A variety of different interest rates may apply, ranging from 3 to 7 percent or much more, even up to 17 percent in rare circumstances. Borrowers who use crypto lending also have the option to put up their cryptocurrency as security or assurances of loan payback. Therefore, in the event that the borrower no longer pays back the loan, the investors can sell the crypto assets, allowing them to recoup their losses.
Since most platforms require borrowers to stake 25–50% of loans in cryptocurrencies, they also possess a chance to recoup their losses most of the time. Since debtors might no longer be able to make loan payments, this can be really helpful.
Crypto lending process
Lenders and borrowers are linked via a third party in the case of cryptocurrency lending. The initial participant in crypto financing is represented by the lenders. They could be cryptocurrency enthusiasts who wish to increase the returns from the assets or those who hold on to their coins in anticipation of a value increase. The cryptocurrency lending platform, through which the loan and borrowing transaction takes place, is the second party. The third party in the transaction is represented by the borrowers, who will receive the funds. They can be individuals seeking funding or businesses in need of funding.
There are several steps in the cryptocurrency lending process:
- The borrower visits their platform of choice to obtain a cryptocurrency loan.
- As soon as the platform accepts the borrower’s loan request, they stake their cryptocurrency as collateral. They will not be eligible to receive the stakes back until they are able to repay the total loan.
- Lenders are able to automatically fund the loan through the platform, but investors will not be able to view it.
- Investors will be compensated with regular interest.
- The desired cryptocurrency collateral will be returned to the borrower once they have completed repayment of the entire loan.
Although each platform has its own unique method for lending cryptocurrency, this is generally how it works. However, you must also remember that there are dangers associated with crypto loans. The disadvantage of cryptocurrencies is that if their value declines, you could have to make larger pledges to recover your investment.
Rates of crypto lending
For crypto loans, each site has a separate rate structure. Therefore, the platform you chose will automatically determine how much of your investment you receive in return. Every cryptocurrency loan site has a unique ROI, and each platform has a unique set of dangers. Therefore, it’s crucial to consider a variety of platforms so as to diversify the risks. Additionally, it will assist you diversify your investments.
In terms of crypto financing, a typical yearly yield might be anticipated. For cryptocurrency coins, it ranges from 3 to 8 percent, while for stablecoins, it is between 10 and 18 percent. If you want to maximise your returns, you will need to choose a platform based on the kind of coins you have.
How do you borrow cryptocurrency?
Make sure you select the appropriate platform while borrowing cryptocurrency. There are several websites that allow you to borrow cryptocurrency, but you must search extensively before you locate a reliable one. Therefore, you must first confirm that a platform is reliable and secure before proceeding to apply for a loan. Once you’ve discovered a trustworthy platform, you should check to see if you have the option of borrowing the kind of cryptocurrency you want to lend. Not all cryptocurrencies will be supported by every platform. You should also research the annual returns on the cryptocurrency you intend to lend.
In contrast to regular loans, getting crypto loans is relatively simple. Depending on the amount of collateral you can provide, you will receive a loan amount. The loan-to-value (LTV) ratio considers both the loan amount and the value of the collateral. For example, if you pledge $10,000 in cryptocurrency as security and are given a $5,000 loan, the LTV ratio will be 50%. Owing to the volatility of the cryptocurrency markets, crypto loans typically have very low LTV percentages.
How do you lend cryptocurrency?
This technique is valued since it allows you to lend your cryptocurrency while receiving interest in return. Imagine using it as you would a savings account. You can store your money while receiving interest payments from the bank or credit union, using a savings account, thereby utilising the cash to get loans from other people and pay them back. You need to locate a reliable platform for lending your cryptocurrency. The next step is to decide whether you want a fixed exchange or a flexible one. The kind of cryptocurrency you want to lend must then be decided. This is dependent upon the state of the market, your tolerance for risk and desired returns.
You stake your cryptocurrency as collateral after making a loan and must then wait for the loan to be funded by investors. When the borrower repays the loan, the cryptocurrency kept as collateral is returned, and the investors are paid the interest on the loan.
Beginners interested in entering the crypto loan market should take into account a variety of platforms, including Celsius, Youhodler, BlockFi, and the like. One can choose the best fit that will not only make the procedure simpler but also maximise the investment yields by carefully examining each of these platforms. However, just like any other type of credit facility, cryptocurrency lending has its own set of risks and uncertainties. Therefore, due diligence and diversifying your borrowing or lending are essential, and the safest ways to protect yourself against losses.
