The act of depositing bitcoin to be lent to borrowers in exchange for recurrent interest payments is known as crypto lending. Payments are made in the form of cryptocurrency, which is commonly deposited and compounded every day, every week, or every month.
Decentralized and centralized crypto lenders are the two primary categories of crypto lending platforms. Both provide access to high-interest rates, often as high as 20% annual percentage yield (APY), and both typically need depositing collateral in order to get a crypto loan.
Learning about Crypto Lending
The capacity to lend out cryptocurrency and earn interest in the form of cryptocurrency incentives is made available through cryptocurrency lending platforms for investors. In 2020, lending platforms gained popularity, and since then, the total value of loans locked on different platforms has increased to billions.
There are two parts to bitcoin lending: interest-bearing deposits and loans. Comparable to a bank account, deposit accounts have similar functions. The lending platform accepts bitcoin deposits from users and pays interest of up to 8% APY (depending on the platform and the cryptocurrency).
Deposited money might be used by the platform to make loans to borrowers or for other kinds of investments. In order to borrow money or bitcoin, borrowers normally need to deposit at least 100% (and sometimes up to 150%, depending on the lender) in cryptocurrency as collateral.
The interest rates differ by platform and call for monthly payments, much like with traditional loans. In contrast to conventional loans, cryptocurrency loans have durations as short as seven days and as long as 180 days, with an hourly interest rate, like Binance. Other lenders, like Nexo, which offers 0% APR, provide an endless line of credit in their place.
Crypto Lending Risks
Due to the loans’ and deposited funds’ dependence on the constantly erratic cryptocurrency market, lending in the cryptocurrency space is inherently dangerous for both borrowers and lenders. Crypto aficionados are less than thrilled as a result of the recent Celsius fiasco, which resulted in the overnight freezing of billions of dollars in deposits.
How to Lend Bitcoin?
Users must register for a lending platform, choose a supported cryptocurrency to deposit, then pay money to the platform in order to become a crypto lender. Interest can be paid in kind or with the native platform token on a centralized crypto lending platform. Interest is paid out in kind on a decentralized exchange, but there may also be bonus payments.
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