How to earn passive income by lending Bitcoin, Ethereum and stablecoins

Toxonaut
Toxonaut
Jun 10, 2019 · 10 min read
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(Updated 1/25/2020) Recently there has been an explosion in websites that allow cryptocurrency holders to earn interest on their holdings by lending them out to borrowers. There are two types of services, custodial and fully decentralized ones.

Custodial services take your money, lend it out to borrowers and pay you the interest. You give away control of your funds and have to trust the lending service that they won’t run away with your money. In return, such services offer a streamlined and easy user experience.

In the case of fully decentralized services you never give away custody of your funds as they are stored in smart contracts to which you always have access. In order for borrowers to get your loan they have to put in a collateral of up to 150% of the borrowed amount, to disincentivise them from not paying you back. Such non-custodial services go under the umbrella term of DeFi (Decentralized Finance).

Both types offer attractive interest rates for lenders. Let’s first have a look at some recent annual rates:

Lending rates of some popular lending sites. Data as of 25-Jan-2020

Some of the sites above offer additional currencies that can be lent out, such as 0x, BAT etc., but they have been omitted for simplicity. A number of websites offer increased lending rates if the user buys a utility token issued by the site. Usually these tokens have to be locked up (staked) on their respective website to activate the increased lending rate. The idea behind this is to provide an incentive for users to buy and hold the tokens and thus increase their value.

Most of the sites also allow borrowing money but the focus of this article is on earning money by lending. There could be possibile arbitrage opportunities by borrowing money on one platform and then lending it out for a higher rate on an other platform. Changing interest rates and prices as well as loan default risk has to be included in any risk assessment when trying cross-exchange arbitrage. I will not go further into this topic.

In the following let’s have a look at the individual services:

Custodial lending platforms

1. BlockFi

2. Hodlnaut

The interest rate for BTC is 6% (effectively 6.2% annually) and 8% (effectively 8.3% annually) for USDC and USDT. There are no minimum deposits or lock-in periods, and users can withdraw anytime. Hodlnaut is one of the emerging players for the crypto lending platform market that aspire to be the leader in the industry.

Read Hodlnaut Review

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3. YouHodler

It’s good to note that if you don’t have the crypto that you wish to deposit and earn interest from, you can convert from another crypto that you have or fiat currency.

YouHodlers is offering interest rates for stablecoins up to 12% a year (4.8 for BTC annually) and supporting four fiat currencies, six stablecoins, and 15 cryptocurrencies

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4 Easy Ways to Make Money with YouHodler

4. Celsius

5. NEXO

6. Crypto.Com

7. Ledn

Cryptocurrency exchanges

1. Bitrue

2. Hotbit

3. Bitfinex

4. Poloniex

5. Binance

6. Coinbase

Non-custodial services (DeFi)

1. Nuo

2. Dharma

3. Lendf.me

4. Compound

5. dYdX

6. Fulcrum

Conclusion

Ethereum has higher lending rates on centralized services such as BlockFi or CRED compared to DeFi site. You have to trust these exchanges though and should always do proper due dilligence before throwing in a lot of money.

Bitcoin lacks smart contract features and thus so far can only be invested in centralized services with all its advantages and risks. The tokenized WBTC could be a way to use non-custodial lending while still retaining the unterlying BTC value. Here however the trust is simply moved from the lending provider to the issuer of WBTC, so this does not remove risk completely.

Whatever you do, do it at your own risk and don’t put in more money than you can afford to lose. I am quite confident that with proper allocation of some of your funds to several of the services above (to spread risk) you can significantly increase your coin holdings. Usually I hear “this is not investment advice”, but in my case here, it is.

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Toxonaut

Written by

Toxonaut

Hobby researcher of upcoming tech in Bitcoin and DeFi. Follow me on Twitter @cryptobasel

Coinmonks

Coinmonks

Coinmonks is a non-profit Crypto educational publication. Follow us on Twitter @coinmonks Our other project — https://coincodecap.com

Toxonaut

Written by

Toxonaut

Hobby researcher of upcoming tech in Bitcoin and DeFi. Follow me on Twitter @cryptobasel

Coinmonks

Coinmonks

Coinmonks is a non-profit Crypto educational publication. Follow us on Twitter @coinmonks Our other project — https://coincodecap.com

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