What is Crypto Lending? Learn How to Lend Your Crypto Coins

It is still innovating, trying different ideas and breaking more barriers in the process. Hannah Lang covers financial technology and cryptocurrency, including the businesses that drive the industry and policy developments that govern the sector. Hannah previously worked at American Banker where she covered bank regulation and the Federal Reserve. She graduated from the University of Maryland, College Park and lives in Washington, DC. Here’s what you need to know about crypto lending – a corner of the digital asset market that has boomed over the last two years during soaring interest in cryptocurrencies. To get a crypto loan, you must own any of the cryptocurrencies that are accepted for loans.

• Target benefits are delivered through speed, transparency, and security, and their impact can be seen across a diverse range of use cases.
• Tom covers crypto companies, regulation and markets from London, focusing through 2022 on the Binance crypto exchange.
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• Suppose any crypto asset’s value drops to a certain point when a significant amount of borrower’s LTVs (loan-to-value) is too high for the lending platform to maintain.
• If the value drops below $20,000, you will need to add more funds.
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Some are steeped in the decentralized finance (DeFi) world, while others have more connections with traditional finance. They vary in how they’re set up and who operates them — details which may prove crucial both to investors seeking to navigate this world and regulators seeking to put guardrails in place. Wildly popular recently, several Decentralized Finance (DeFi) protocols allow you to lend out your cryptocurrencies without requiring a middleman (Compound). Instead, a smart contract would be used to ensure that the loan would be handled correctly.

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I’m a firm believer that information is the key to financial freedom. On the Stilt Blog, I write about the complex topics — like finance, immigration, and technology — to help immigrants make the most of their lives in the U.S. Our content and brand have been featured in Forbes, TechCrunch, VentureBeat, and more. As crypto and blockchain companies gain traction, they put crypto to the Howey Test. It’s important to note that while DeFi mimics the traditional financial ecosystem, it does so without the same amount of rigorous regulation. There’s a vast amount of choice available of where to take out loans.

The answer is evident in the money deposited by other customers of the bank and in other financial instruments. So, the bank or the company is just working as a middleman between the actual lenders and borrowers. So, your returns will be entirely dependant on the platform that you choose.

How does stablecoin lending work?

Keep in mind that each lending platform has different rates for different coins. So, to ensure you get the best returns for your crypto assets, compare the rates on different platforms for a specific cryptocurrency. Cryptocurrency lending is inherently risky for both borrowers and lenders because the loans and deposited funds are beholden to the ever-volatile crypto market.

• If your LTV ratio becomes too high, you might also have to pay fines.
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• The assets can get more value while you hold them without plans of selling them, and that is what crypto lending allows you to do.
• Donna Goodison (@dgoodison) is Protocol’s senior reporter focusing on enterprise infrastructure technology, from the ‘Big 3’ cloud computing providers to data centers.

Crypto lending is when you lend your cryptocurrency funds to borrowers in exchange for interest payments. It’s available through crypto exchanges with lending programs and decentralized crypto lending protocols. These protocols are decentralized finance (DeFi) apps (platforms without a central authority managing them) where users can borrow or lend crypto.

Is Crypto Lending Safe?

Unlike centralized exchanges (CEXs), DEXs do not require a trusted third party, or intermediary, to facilitate the exchange of cryptoassets. Once you have an active exchange account, you can find the platform’s crypto lending rates by navigating to the lending area, which can go by different names depending on which platform you use. To lend your cryptocurrency, you have to find a good and trustworthy platform for this. Then, you need to think of the exchange you want, respectively fixed or flexible exchange. This depends on the conditions of the market, as well as the returns you desire and how well you tolerate risk.

• MakerDAO is one example, as users can provide a variety of crypto to back up their loans.
• Unfortunately, Glenn Huybrecht, vice president of operations and chief operating officer at Cake DeFi, says crypto lenders must also understand the risks they are taking on.
• SALT Lending, which launched in 2016, was the first platform to offer crypto-backed loans.
• You can find crypto lending services on both centralized and decentralized platforms, but the core principles remain the same.
• Crypto lending is an ingenious instrument to obtain the cash you need quickly, as it allows you to utilize your crypto holdings as security to get secure loans.

In Ontario for example, relevant legislation includes the Personal Property Security Act and the Securities Transfer Act. In Quebec, security interests are governed by the Civil Code of Quebec. Even though cryptocurrency or crypto-assets are not explicitly mentioned in these regulatory regimes, lenders must comply with these rules to ensure their security interests are valid and enforceable. For lending out crypto assets, the process is also very straightforward. Despite an intense debate raging about cryptocurrency offering a great window to grow wealth with alacrity and its extremely volatile ways, there is no denying the fact the industry has grown rapidly over the last two years.

Benefits of cryptocurrency lending

Staking is when you lock up your crypto to help secure the blockchain network. It’s an option with blockchains that use the proof-of-stake system to validate transactions. In this system, a blockchain network requires that users who want to validate transactions stake their crypto, meaning they put it up as collateral. Crypto loans are also subject to the price volatility of the underlying coin, and additional collateral will be required if the LTV increases. Decentralized Finance (DeFi) is bringing access to financial products to everyone. As such, when a platform is  outed as an elaborate Ponzi scheme, your money isn’t protected by any financial regulators.

• “We stay out of the flow of funds, which are held by our custody providers,” Manfra said.
• But at least, if it’s understandable, then there’s still some trust in the framework even if you don’t agree with how our decisions are stated.
• Usually, the lending rates for cryptocurrencies are 3% to 8%, while the rates for stablecoins vary from 10% to 18%.

Generally, you can borrow up to 50% of the value of your digital assets, though some platforms might allow you to borrow even more. Crypto loans generally don’t have a concept like EMI and borrowers may repay when they can before the fixed term ends. As for the interest rates, it is approximately 4% on Celsius Network on popular non-stablecoin cryptocurrencies.

The Future of Crypto Lending

Jamie Condliffe (
@jme_c) is the executive editor at Protocol, based in London. Prior to joining Protocol in 2019, he worked on the business desk at The New York Times, where he edited the DealBook newsletter and wrote Bits, the weekly tech newsletter. https://hexn.io/ He has previously worked at MIT Technology Review, Gizmodo, and New Scientist, and has held lectureships at the University of Oxford and Imperial College London. He also holds a doctorate in engineering from the University of Oxford.

Working of Crypto-backed Lending

In fact, many platforms ask that you overcollateralize, which means put up more value than you want to borrow. This is because crypto loans are permissionless, which means you usually don’t need to pass know-your-customer (KYC) verifications to take out a loan. As such, lenders don’t know who you are and therefore need a guarantee that you won’t skip town without repaying.

Why Lend With Nexo?

Crypto lending has become one of the most successful and widely used DeFi services, and many crypto exchanges and other crypto platforms offer borrowing and lending services. Investors deposit cryptocurrency, which the platform lends out to borrowers in exchange for interest payments. One of the foremost factors which can help you with crypto-asset lending more than a crypto lending calculator is research. Investing some time in doing your own research could help you identify suitable platforms for crypto loans. The best choice in such cases would refer to platforms or smart contracts with well-audited security and a favorable track record.

Farewell from Protocol

There, Faruqui prosecuted cases that involved terrorism, child pornography, and weapons proliferation. “We stay out of the flow of funds, which are held by our custody providers,” Manfra said. That’s meant to avoid being categorized as a money transmitter, which could trigger state-level regulation. Dentons is a global legal practice providing client services worldwide through its member firms and affiliates. This website and its publications are not designed to provide legal or other advice and you should not take, or refrain from taking, action based on its content. Crypto-backed loans aren’t federally insured, so you aren’t guaranteed compensation in the event of something like a security breach.

Crypto lending has come under scrutiny from the Securities and Exchange Commission and state regulators. These products, which often tout high yields, are securities, the agencies have said. That’s right, there are solutions out there that would let you give out a loan with your crypto. However, it does work a bit differently than your standard loans.

Moreover, cryptocurrencies at times undergo changes in their blockchain protocol that may affect the collateral, such as splits and forks, token swaps and roll-backs. In a secured loan transaction a lender provides the borrower with a certain sum of money under a loan agreement and takes a security interest in the property, or collateral, of the borrower. In crypto lending, the borrower uses its cryptocurrency as collateral to secure a loan of money. To lend crypto, users deposit their assets with a lending platform and wait for borrowers or investors to take out a loan. The lenders receive interest, with rates that vary depending on type of asset and platform.

A borrower pays a fee for the loan and the lender earns interest. Crypto lending is available on DeFi lending and borrowing protocols and centralized cryptocurrency exchanges. As for the question, is lending crypto profitable, it depends on a string of factors.

HODLers are crypto enthusiasts who hold on to their cryptocurrency and refuse to sell regardless of increasing or decreasing value. However, HODLing doesn’t result in any productive use of crypto assets. Understand the risks of handing over custody of your crypto coins. As soon as the coins leave your wallet, you’ll have to trust someone else (or a smart contract) to handle them.

Understanding Crypto Lending

It’s best to go with lending platforms or smart contracts that have had its security audited well and that have a good track record. In short, crypto lending is an alternative investment form, where investors lend fiat money or cryptocurrencies to other borrowers in exchange for interest payments. There are numerous risks with crypto lending, with one of the most significant being market volatility. Since loans are overcollateralized, market movements can multiply user losses in the event of a liquidation or margin call. When large amounts of money flow through a DeFi system, issues relating to low liquidity and interest rate changes might occur as well.