The Complete Guide to Earning Interest on Crypto Loans

During the latest bear market period, the popularity of crypto-backed loans skyrocketed, as well as a number of loans providers. The majority of them allows investors to earn interest on their assets, in other words, making them lenders.

At Squilla Capital we constantly evaluate different investment opportunities. But retail and institutional investors have drastically different access to available investment vehicles, moreover, it is sometimes hard to navigate in the plethora of different coins and platforms. That is why we prepared that simple infographic to help you choose the best way to leverage your crypto-holdings, based on your desired time commitment and coins portfolio. While it was quite hard to include in the infographic metrics from marginal lending, due to the high volatility of rates, we tried our best to make it useful.

You can find a more detailed discussion of each segment, along with the forecasted ROIs, after the infographics.

Keep in mind, it is not a sponsored post and neither do I nor Squilla has any kind of affiliation with mentioned services.

Centralized systems

Platforms like Nexo, Celsius, and recently hyped BlockFi handle all the “hustle” of being a lender, limiting investor’s involvement in the process. He just has to debit crypto assets to a loan pool.

However, there is different supply and demand on various coins, so in order to maximize your profit, you need to check your portfolio from time to time.

While there is an appealing advantage of that type of systems because they mainly reduce risks and time commitment but, on the flip side, their interest rates are lower.

P2P Networks

Speaking about P2P systems, since they are basically marketplaces, it is sometimes hard to match supply and demand, resulting in huge spreads in rate between loan offers and requests. User acquisition cost is higher than for centralized networks, due to the high minimum number of active participants on both sides, hence only a few platforms succeeded in these space. The most promising are: LendaBit backed by Bitfury, CoinLoan, and ETHLend.

Both parties, lenders and borrowers, have more control over their terms of loans.

Investors have to be involved actively in choosing loans. A really hot request could fly in seconds, forcing lenders to constantly monitor a platform. That type of activity bears fruits thought, while keeping risks quite low, due to overcollateralization of loans, investors can squeeze some additional interest points.

Marginal lending

Several exchanges are allowing to fund marginal trades. The process operates in more or less the same way to P2P Networks, despite one trick. You can find bots for these marketplaces, some of which you can run on your computer or server, others are operated by companies, such as Coinlend. In this case, you are automating selection of loan requests, and I believe, there is no point in doing it manually. They charge you based on a success fee, which is a good sign.

We ran a 2-month test of the platform (premium access with advanced strategy features) and got pretty solid results, forecasting about 12% ROI.

Bottom line

In the end, everything is boiling down to your available capital, desired time commitment, and some luck. For example, you can find really sweet deals on ETHLend, but there is potential that your assets would be underutilized, meaning that your average ROI wouldn’t be that high. And it is true about almost any P2P network.

LendaBit is worth to be mentioned in these regards, allowing you to invest in a loan pool with fixed percentage, while diversifying into some selected loans, trying to catch the deal.

From my point of view, it seems logical to start with marginal lending or Lebdabit, with further diversification into centralized systems, since it allows you to maintain some degree of control over your assets allocation.

On the other hand, if you are looking for an investment with the most stable infrastructure and the least involvement, I would suggest you using Nexo.

Lastly, if you want to leverage your “true” crypto assets, I’m talking about non-stable coins here, you have a rather limited choice. You are left either with Celsius or with Coinlend.