Cryptocurrencies have now been around for many years and have gained a lot of mainstream attention. The adoption rate of cryptos is so large that this industry is expected to reach $2.2 billion by 2026. There are many investment options in the crypto space for you to look into if you so desire.
Cryptocurrency lending, also known as “crypto lending”, is quickly becoming a go-to alternative for investors frustrated with minuscule yields from banks savings accounts.
Crypto lending may be a new concept for you but fear not! In this article, you will learn all you need to know about cryptocurrency lending.
So, let’s dive in!
What is Crypto lending?
Crypto lending allows investors to earn interest on their assets without actually selling them. An investor lends his cryptos to a borrower and earns dividends in return. The lender remains the sole owner of his assets. The interest rate ranges between 4% to 17% yearly.
On the other hand, a borrower has to offer collateral to get a crypto loan. He retains the ownership of his collateral but cannot use it until he pays back the entire loan amount by the end of the lending period.
How does Crypto Lending work?
Crypto lending involves lenders, borrowers, and a third-party i-e lending platform. Crypto lending consists of the following steps.
- A borrower goes to a crypto lending platform and requests a crypto loan.
- Upon approval of the loan by the platform, the borrower has to attach collateral.
- A lender transfers the loan amount to the borrower through the lending platform.
- A borrower has to pay back the entire loan amount within the loan period to get back his collateral.
- If the borrower could not pay the loan amount, the lender can liquidate the borrower’s collateral to cover the losses.
Pros and Cons of Crypto Lending
Crypto lending has some pros and cons, which are mentioned below.
Pros
- Crypto loans are easily accessible. Anyone can get a crypto loan with or without a credit score.
- Crypto loans are faster. It takes only a few hours to receive funds after approval.
Cons
- Some lending platforms have minimum borrowing requirements that you must have to get a loan. The requirements can be sometimes very high, causing barriers for some.
- If you fail to pay the loan amount within the specified period, the platform will liquidate your collateral, and you will end up losing whatever you put up.
Top Crypto Lending Platforms
The following are few leading crypto lending platforms.
- Celsius
- Binance
- CoinLoan
- BlockFi
Conclusion
Crypto lending is different from traditional bank lending in many ways. It has many benefits but comes along with risks as well. Therefore, you need to be very careful when you start crypto lending.
Always choose a well-reputed lending platform and make sure how much interest rate you will earn, or you will have to pay and how much collateral is required to secure a crypto loan.
Crypto lending is rewarding but risky at the same time. Therefore, always do your own research and keep educating yourself.
Presented by CryptoShare, a lending platform that allows people to lend and borrow money without banks or credit checks.
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