Nov 17, 2022

Read 3 min.

What is Crypto Lending and How Does it Work?

Crypto lending is one of the ways to help grow your digital currency. This tool lets users borrow and lend cryptocurrencies for a fee or interest. Let’s have a detailed look at this method of earning passive income.

How it works

To lend crypto means to deposit cryptocurrency on a lending platform, so it is given to borrowers in return for regular interest payments. Here, crypto lending platforms serve as important intermediaries that connect both sides and make the process safe.

It resembles loans in traditional banks: lenders deposit their crypto into high-interest accounts, and borrowers secure loans through the intermediary. The platform then funds the loan using the crypto that lenders have deposited.

Crypto loans and terms

So, a crypto loan, or a crypto borrowing, is a type of secured loan in which one’s crypto holdings are used for getting interest payments. Loan terms can vary from seven days to a year or more — it is agreed by lenders and borrowers, and limited only by platform’s possibilities.

What crypto can be lended?

Bitcoin and Ethereum and the two most popular cryptocurrencies for loans, as well as stablecoins. Some platforms accept as many as 40 different cryptocurrencies as collateral. Typically, users can borrow up to 50% of their crypto’s value on a lender like Binance. A few platforms also allow you to borrow up to 90% of the value of your assets.

Interest rates

Crypto landing interest rates are usually lower compared to P2P loans and credit cards. On some platforms like Nexo, interest rates start from 0% and up to 14%. However, the rates for stablecoins are higher and are often in the range from 10% to 18%. Keep in mind that each lending platform has different rates for different coins.

Making money by loaning crypto

Usually, when lenders deposit their crypto for borrowings, no other fees are taken from them. After the loan’s term finishes, lenders get their full deposit back with interest. Lenders receive payments in the same cryptocurrency as deposited, on a daily, weekly, or monthly basis.

The risks

Everything mentioned above may make an impression that crypto loans are a totally safe and lossless type of earning. However, there is an inherent risk connected with inflation and crypto prices drops.

To sum it up

Crypto lending is another way to make your digital assets ‘work’ and bring passive income. If you want to try this tool, take your time to choose a lending platform that offers reasonable interest rates and supports the currencies you want to lend.

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