The cryptocurrency market is notoriously volatile, and because of that, no one can predict with certainty when the value of digital coins will surge in value or when they will decline. Hence, investors are constantly prone to market risks while they also can earn significant profits within a matter of days.
However, the risk of lower returns, or losses, has not deterred investors from investing in cryptocurrencies, because when the market ascends in a straight upward line, the rewards are spectacular. Increasingly, investors are holding their digital assets to avoid selling at a market’s bottom, and missing out when the markets rally. Some investors, however, continue to invest in cryptocurrencies to get immediate gains. They rarely think long-term and sell their cryptocurrencies as soon as their prices shoot up a little. Such investors do make some profits but lose out on the chance to earn windfall profits.
There is no denying that the crypto market has and will plunge from time to time, causing a loss to the investor. But it is also true that more often, it has and will rise spectacularly, and when that happens, the prices of cryptocurrencies are bound to skyrocket. Because of that, the holding of cryptocurrencies is a much more lucrative option compared to selling them or using them for daily needs. Holding, however, does not mean investing in cryptocurrencies, storing them in a wallet, and forgetting about them for a few months or years.
A decade ago, when cryptocurrency came into existence, crypto-holders could gain profits only through selling their digital coins. At present, they have plenty of other options. It is now possible to earn profits without selling their digital coins. And, cryptocurrency lending enables them to earn passive income.
The popularity of cryptocurrencies is not a fad. Big players joining the crypto universe is a clear indication that they have a bright future. Popularity plus increasing acceptance and institutional investments have resulted in the expansion of the crypto-ecosystem, with a new wave of crypto-related services making their presence felt. DeFi (short for decentralized finance) lending is one of them. It is enabling a lot of investors to earn passive income from the cryptocurrencies that they hold, without renouncing their ownership over them.
Cryptocurrencies that are stored in a wallet do not give owners any interest over time. They can, however, earn attractive interests by taking them out of the wallet and offering them as a loan for a certain duration. It is one of the most simple and effective ways to earn passive income. So, instead of waiting for the market to jump, investors need to create an account on a DeFi lending platform, to gain significantly and immediately.
The process of lending cryptocurrencies through the DeFi platform, such as Nuo Network, is fast, efficient, effortless, and transparent. Lenders also do not have to worry about risks and loss, as borrowers borrow digital assets against collateral. If the loan is defaulted on, the collateral is used to repay the lender.
DeFi, Peer-to-Peer Lending Service
DeFi platform is different from a traditional financial service. It is typically a peer-to-peer service that has limited or no regulations; therefore, it offers its users financial freedom. Also, it offers asset owners complete control over their funds. In comparison, banks or traditional financial systems process loan requests according to regulations, and there are too many of them. They also serve as intermediaries and connect lenders and borrowers.
Moreover, in the traditional system, banks have complete control over the funds. They do not allow the asset owner to directly transfer the money to a borrower. And, it is not the lender or the borrower but the bank that acts as the trusted party. It determines who to lend and not to lend and at what interest rate, and when the borrower should return the loan.
There are no trusted parties when it comes to DeFi platforms. It operates on the concept of trustlessness. Lenders and borrowers directly connect, and even though they have no information about each other, they agree to lend and borrow. They also decide on the terms of the loan.
In the Defi platform, there is no space for the middlemen to manage the transaction. For example, Nuo Network lets lenders create a debt reserve for their digital assets for a specific duration, and it enables borrowers to borrow from that reserve. It does not tell them who they should deal with or what should be the terms and conditions. The platform only facilitates and has no other role to play in the lending and borrowing process.
How to Earn Passive Income via Crypto Lending?
Leveraging De-Fi lending platforms, the crypto investors can create a steady stream of passive income for themselves and that too without active involvement. They earn it through interest payments made on the digital assets that they had loaned to others. Let’s take the example of Nuo Network to understand how investors can earn passive income by offering their digital assets as a loan to the borrowers.
Investors first have to create a Nuo account. Once created, they need to transfer ETH or ERC20 tokens to the account, to begin lending on the platform. The next step is the creation of a debt reserve, a pool of ETH and ERC-20 tokens created for a specific duration.
Borrowers can borrow from the debt reserve against collateral. Investors who are part of the reserve earn daily interest (passive income), which is based on borrowers’ daily repayments. The interest is accrued in the reserved contract and distributed “proportionally” and “periodically” every day.
The Nuo platform calculates the annual premium rate, or APR for short, based on an average daily interest distributed to a token reserve. APR is the return that the lenders would get if their tokens are locked up for a year based off of the historical performance of the token debt reserve. The lenders get back their entire crypto assets plus the interest earned on them after the debt reserve expires.
How much passive income lenders can earn? On the Nuo platform, it depends on several factors, including the value of the deposited tokens, the demand and supply of the debt reserve, and the terms of the loan. Borrowers have to pay the interest that they had agreed on at the time of loan confirmation, even if they intend to repay their loan early.
Interest Rates Better than what Traditional Investments Offer
On DeFi platforms, crypto-asset lenders can earn a lot more in interests than those who lend money via traditional investments. They certainly earn higher interest compared to what the banks offer to their savings account holders. Importantly, it is not the platform but the crypto lenders and borrowers who determine the interest rate.
Banks in the U.S, usually pay interest that is below 1 percent. According to the federal deposit insurance corporation’s (FDIC) weekly update in May, the average national interest rate offered for saving accounts was 0.09 percent, and for the money markets, it was 0.16 percent.
The inflation rate is around 2 percent in the U.S., which means that bank users earn almost zilch interest on the money lying in their savings accounts. Bond investments offer investors a set interest rate, which can be around 0.25 percent to 2.70 percent.
In comparison, the returns are much-much better in the DeFi platforms. The interest rates, however, vary from platform to platform. In Nuo Network, lenders can earn up to 14 percent interest on the digital assets offered as a loan to the borrowers.
The interest rate depends on factors such as the value of the tokens and how much lenders have added in their debt reserve.
Lenders are likely to earn 10 percent interest income if they supply 10 ETH in the ETH reserve, which has a total of 100 ETH, according to Nuo Network co-founder Varun Deshpande.
Benefits of Crypto Lending on De-Fi platforms
- Users of the DeFi platforms do not have to pay a hefty transaction fee.
- Cryptocurrency lending is not limited to certain locations. Crypto-holders can earn passive income from anywhere in the world. They just need an internet connection.
- The use of smart contracts enables lenders to quickly asses counterparty’s trustworthiness.
- There is no censorship.
- The transaction process is fast, automatic, and users can easily verify.
- The borrowers pledge digital assets as collateral to lenders, which ensures that the lenders do not suffer any loss.
- There is no need for a bank account.
- Borrowers and lenders directly deal with each other and set the terms.
To Sum it up
Investment in cryptocurrency can cause a high level of stress due to the extremely volatile market. And, crypto-holders are likely to become anxious while waiting for the market to show signs of a sustained upward trend. Earning passive income is the best way to reduce stress and anxiety.
Crypto-holders can start earning passive income by creating an account on a DeFi platform, depositing their digital coins and tokens, and allowing borrowers to borrow digital assets on an agreed-on interest rate. Lenders do not have to work to earn income. Also, they earn while holding cryptocurrencies and not selling them.