Mar 24th 2023

What Is Crypto Lending?

Crypto lending is the act of depositing cryptocurrency to be lent to borrowers in exchange for recurrent interest payment. 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.

Understanding Crypto Lending

The opportunity 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 cryptocurrency lending: interest-bearing deposits and loans. Similar to a bank account, deposit accounts have similar functions. The lending platform accepts cryptocurrency 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 cryptocurrency, borrowers normally have 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 require 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. Some lenders, like Nexo, which offers 0% APR, provide an endless line of credit in their place.