Understanding Crypto Lending

Cryptocurrencies are all the rage these days. So much so, in fact, that you might be asking yourself what all the fuss is about. In this article, we’ll take a closer look at crypto lending and explain what it is, what it does, and some things you need to know if you’re interested in how to lend cryptocurrency.

Crypto lending is a new form of peer-to-peer lending that uses digital assets as collateral. Unlike traditional loans, where you need to provide a physical asset as collateral, with crypto lending, you can use cryptocurrencies like bitcoin and Ethereum as collateral.

First and foremost, you need to understand that crypto lending is a risky business. While the potential for profits is high, there is also the risk of losing your entire investment. They are offered as collateralized products that require you to deposit a minimum of 100% in crypto collateral to borrow cash or any cryptocurrency. Also, when it comes to terms, they usually last as short as seven days and can go up to 180 days, and lenders charge hourly interest rates.

What Exactly Is Crypto Lending?

As mentioned above, crypto lending is where borrowers can access funds from lenders in the form of cryptocurrencies. So if you are looking for crypto lending, know that payments will be made in the form of cryptocurrency (Bitcoin, Ethereum) that is then deposited onto your account and then compounded on a daily, weekly, or monthly basis. On top of that, you will also have to pay high-interest rates for a deposit, which can go up to 20% APY.

How Does Crypto Lending Work?

Crypto lending involves three parties: the borrower, the lender, and the DeFi platform or crypto exchange. You will also need to provide collateral to secure the loan before you actually borrow any cryptocurrencies.

After you do that, lenders will put all their crypto into a pool which will then manage the whole process and will send them a cut of the interest.

Common Types of Crypto Loans

Crypto lending is a new, growing industry that uses blockchain technology to provide loans to borrowers. They have many different types to them, so choosing the best for you is a must.

Here are some common types:

• Flash loans – Allows you to borrow without putting collateral. The names come from the fact that you can borrow and return within a single block. In a case you default on the loan, the transaction is then canceled before it can be validated in a block.
• Collateralized loans – With this type of loan, you are required to provide collateral. In case the market is volatile, you will need to have a low loan-to-value ratio. For example, 50%.

Crypto Lending vs. Crypto Staking: What’s the Difference?

Crypto lending is a new way of earning interest on cryptocurrency holdings. Crypto staking is the traditional way of earning interest on cryptocurrency holdings. Let’s explain them a little bit more.

Crypto lending lets you borrow cryptocurrencies and return them with interest payments. This is similar to how you might borrow money from a bank or another lender and make regular repayments. The catch is that you need to have a cryptocurrency stash in order to qualify for a loan.

Crypto staking, on the other hand, is the traditional way of earning interest on cryptocurrency holdings. With crypto staking, you are rewarded for holding your coins in a particular wallet or blockchain network. This means that you don’t need to have any extra coins handy – all you need is a wallet that supports staking, and you’re good to go!

Benefits and Drawbacks of Crypto Lending

Now that we covered some basics of how crypto lending is and how it works let’s take a look at some benefits and setbacks. Like any other form of lending, they do have both good and bad sides.

Here are some of them.

Benefits of crypto lending:

• Low transaction fees
• Don’t need a bank account.
• Fast and easy to get
• Diversified portfolio
• Available to all

Setbacks of crypto lending:

• Higher chance of defaulting the loan
• Not all platforms are insured
• Possibility of getting hacked
• Volatility
• Problem to tax

Benefits

If you are new to crypto lending, you should know they are very easy to get. You will also have a wide range of different coins to choose from, and it doesn’t require any bank accounts from you. And on top of that, you will also have very low transaction fees.

Drawbacks

As much as they are easy to get and offer good deals, they do have bad sides to them also. The first one is that you could get hacked. This means that all of your information, including your bank details, can be stolen. If that is not enough, you can also end up defaulting on the loan, which can then put you in debt.

Is Crypto Lending Secure?

Crypto lending is a very new thing to all of us. They are performed online, and you don’t even know who your lender is. Since it’s a new thing, there are no laws that can protect you as a borrower. This means that all your details, like a bank account, your name, and others, can be stolen, and you can’t do anything. Also, once you put your deposit down for a loan, the deposit is not secured, which means you can give the lender the money and not get the loan.

Now, if that doesn’t raise the suspicion of security, the platforms can use your cryptocurrencies to make even more money for themselves. That means they have access to your account and free will to do whatever they want.

So, if you are looking for where to lend the crypto, we do suggest you think about the security that surrounds them since, to put it in simple words, it’s not very safe to do. At least for now.

Bottom Line

If you are at least a little bit following the financial market or news, you have probably heard of cryptocurrencies. And as of recently, we have been introduced to crypto lending. This is a new form of lending money through your cryptocurrency.

Now, we know it might sound like a very complicated thing, especially if you are new to something like this. Because of that, we made this article to explain a bit more about what crypto lending is and how you can do it. Before you do decide to jump into something like this, we do recommend consulting with an expert.