How does Crypto Lending Work? Tips to Earn Interest Online Now
If you’re reading this, you are probably aware that you can lend crypto for interest. But you may be unsure exactly how to begin lending cryptocurrency. We’re going to discuss the basics of how to lend crypto for interest using the most credible crypto lending platforms.
Is your crypto sitting idle in your wallet?
While the crypto market has treated investors reasonably well over the past few years, you could be earning much more. A new era of crypto-lending apps is paving the way for safe and steady earning.
If you want to know the basics of how crypto lending works and earn interest on crypto, this is what you need to know today.
How does crypto lending work?
There are a couple of different ways you can earn interest through crypto lending.
Crypto lending is a great way to diversify your investment portfolio and earn interest on your cryptocurrency. When you lend crypto through collateralized crypto-backed loans, it pairs you with a borrower.
A crypto-backed loan which is similar to a securities-based loan uses digital currency as collateral. The borrowers pledge their crypto assets to obtain the loan and pay it off over time. This lets borrowers take out a fair-interest loan without any kind of credit check or personal scrutiny. So, crypto loans also provide a great tool for borrowers to secure quick loans against their assets.
While the borrowers retain ownership of the crypto they’ve used as collateral, they lose some rights, such as the ability to trade it or use it to make transactions. If you have no intention to trade or use their crypto assets in the near future, you may consider crypto lending as a crypto investment strategy because of the benefits they provide and earn more interest.
P2P lending matches investors like yourself with borrowers through a P2P lending platform. They’re an attractive alternative to banks as interest rates tend to be more reasonable and end up in your pocket rather than in someone’s yearly bonus.
In P2P crypto lending, all loans are collateralized by cryptocurrency. This lets borrowers take out a fair-interest loan without any kind of credit check or personal scrutiny.
The loan is already backed up often more than 150% of its value in crypto. The risk is minimized for you too because in the case of default it is much easier for the crypto lending platform to recover your principal.
How to choose the best crypto lending platform
When choosing which crypto lending platform to use, there are several factors to consider.
- Are the interest rates competitive enough for you?
- Is the platform easy to navigate and access?
- Is the platform credible?
- Can you be sure your crypto is secure?
- Are there reasonable fees and rates for withdrawing funds?
- Can you retrieve your funds in a timely manner?
Major types of crypto lending platform
There are currently many crypto lending platforms available for investors and borrowers. These platforms tend to divide into two categories:
- Centralized lending platforms
- Decentralized lending platforms
Both offer different benefits and limitations.
Centralized lending platforms
Centralized lending platforms act more like traditional P2P lending companies (like MyConstant or BlockFi) using cryptocurrency as collateral.
In a centralized platform, funds are stored and routed through a third-party platform. They usually get a profit from small cuts of your interest and some added fees. However, to compete with banks and other platforms, they generally make sure to provide consistent interest rates for lenders.
Because they aren’t stuck on one blockchain they can often accept many types of crypto as collateral and principal.
Centralized platforms are a strong choice for you if you want:
- Competitive rates.
- More options for earning.
- Integration with fiat systems like traditional banks.
- Active customer service.
Before you attempt to lend via a centralized lending platform, you should research the platform to make sure it is credible. Check customer testimonials and find out what steps the crypto lending platform is taking to safeguard your assets.
Decentralized lending platforms
Decentralized platforms set interest rates purely based on supply and demand for an asset on the platform. The amount of influence the platform creators have on the platform is often minimal and so is their cut of profits.
On one of the leading decentralized lending platforms, Compound Finance, you can deposit any accepted stablecoin into a lending pool. Borrowers then can access loans of stablecoins from the pools in exchange for ETH or one of their accepted ERC20 tokens as collateral.
If borrowers want their crypto back, they have to repay with interest which is distributed among lenders. All rates are determined by supply and demand for each stablecoin and cryptocurrency on the platform.
Another common method for decentralized lending is providing liquidity to decentralized crypto exchanges (DEXs). On a DEX, people freely exchange cryptos for other cryptos automatically based on their current market price. However, because a third-party isn’t actively profiting they need someone to make sure there are enough cryptos held on the platform for people to exchange.
You can provide in-demand cryptos for a platform’s liquidity pool in exchange for a portion of transaction fees. While this isn’t collateralized like the lending pool model, it lets you earn interest directly on your non-stablecoin cryptos.
Decentralized platforms are a good choice for you if:
- You hate risk and you’ll accept lower rates for it.
- Want to keep your transactions completely on the blockchain.
- Only hold major cryptocurrencies.
Earn decentralized and centralized interest on your crypto at rates up to 15% APY on Constant
At MyConstant, you can earn interest by investing in centralized crypto-backed loans or our decentralized crypto lend.
When you invest in crypto-lend, you lend your crypto like USDT, USDC and BTC to a DEX’s liquidity pool in exchange for a cut of the transaction fees. Right now that’s up to 15% APY.
And when you invest in our core crypto-backed loans, you can lend your stablecoins or USD to fund fully-collateralized loans with up to 7% APR in returns.We want to help you learn how to invest in cryptocurrency and how to lend it if you’re new to the game. We pride ourselves on ease-of-use and we have a customer service team available 24/7 to answer any questions you might have.
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