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A Guide to Cryptocurrency Lending Platforms

Most cryptocurrency investors keep their digital assets and wait for the right time to sell them to earn a profit. There are other ways to earn income from crypto aside from waiting until the prices are better. One of them is staking. Crypto staking is like putting your fiat money in a high-yield savings account. Locking in your money for a certain time will earn interest. In crypto, you lock up your coins and they are “put to work” on the blockchain. Those who stake will earn a certain percentage as a reward that’s typically higher than traditional bank interest rates.

Another way to grow crypto is to put your digital assets in a crypto lending platform. It is also similar to how lending works in a traditional bank. Banks lend out fiat and the depositors earn interest. In crypto lending, investors lend out their money and they earn interest in crypto known as “crypto dividends.” Interest rates will depend on the coin deposited. Stablecoins usually have higher yields at 10% to 18% a year. Crypto coins earn about 3% to 8% per year.

Types of crypto lending platforms

Centralized platforms act as middlemen between borrowers and lenders. They handle the transfer of loan amounts and manage all associated aspects. Aqru, BlockFi, and Nexo are examples of centralized platforms. Decentralized platforms use smart contracts to handle all the details. Aave, MakerDAO, and Compound are some of the crypto lending platforms that are decentralized.

Lending platforms can be automated or manual. In platforms using automated crypto lending, investors will automatically earn crypto dividends. Manual crypto lending platforms enable an investor to choose from the marketplace section where borrowers set their loan requirements.

How crypto lending works

Lenders will deposit their digital assets with the platform, which pools these together with funds of other investors. The platform then lends the crypto to borrowers. Borrowers repay their loans with interest. Lenders will be paid interest in crypto based on how much crypto they deposited. They can withdraw the interest earned and deposited amount after a certain time. Investors can also choose to just withdraw their crypto dividends and leave their digital assets in the platform to earn more.

Crypto lending platforms differ from peer-to-peer (P2P) lending platforms. P2P lending platforms match borrowers with investors willing to loan out their crypto. Borrowers and lenders don’t transact with each other directly. P2P lending platforms will determine loan eligibility, interest rates, and the collection of payments.

Things to consider in choosing a crypto lending platform

Supported coins – crypto lending platforms offer different interest rates depending on the crypto coin you wish to deposit.

Terms of lock-in period – some platforms have minimum lock-in or lock-up periods. Investors cannot access their funds until the end of the agreed term. There are platforms that don’t have lock-in periods.

Annual percentage yield (APY) – this refers to the amount of interest that will be paid to investors. APY depends on many factors, including which coin you deposit and if you choose to stake on a platform’s own token.

Distribution of crypto dividends – when you will receive dividends differ between platforms. Some distribute daily, while others do it weekly.

Platform safety – look at a platform’s track record on security. The rising adoption of crypto has made it a target for cyber attacks. It’s important to check on the safeguards a platform has to protect their customers.

Fees – platforms offer different rates for fees on different digital assets. One platform may ask for higher fees for certain coins and others will require lower fees.

Restrictions on location – some platforms limit their investors to a particular country or location.

Risks involved

Unlike in traditional banking, there are no regulations on crypto lending platforms. They insure only a small percentage of their assets. Investors may lose their digital assets in case of insolvency. It will be wise not to deposit all of your crypto in a lending platform.

These platforms may freeze accounts because of issues like liquidity, security breaches, or anti-money laundering concerns. Investors cannot access their digital assets, and unlocking their accounts may take a long time.

Platforms may change the rate of APY without prior notice to their customers. They may do this when there are major changes in the crypto market or regulations from government agencies.

Your XMR can earn interest in crypto lending platforms, such as YouHodler, CoinLoan, Nexo, or Binance Lending Program. Please note that these are not recommendations. Research on these and other platforms before putting in your XMR. Monero owners need to have secure crypto wallets to keep their XMR in, whether or not they intend to lend them. There are a great deal of hot and cold wallets available for each type of crypto asset and it’s highly recommended that you have both kinds. If you’re looking for an open-source web-based Monero wallet, sign up for an XMRWallet. It enables you to have faster, easier, and uninterrupted Monero transactions.

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