Most people don’t prefer leaving their crypto assets in their wallets if no rewards or benefits are offered. If you are looking for ways to earn interest on crypto with better rates, trying crypto lending can be a great option.
But what is crypto lending, and how does it work?
Crypto Lending: What Is It?
Crypto lending means lending your digital assets to borrowers with regular interest payments as returns. All the transactions are in the form of depositing crypto and compounded on a weekly, daily, or monthly basis.
The crypto lending platforms are of two types
- Decentralized lenders
- Centralized lenders
Both these platforms offer high-interest rates, sometimes almost 20% APY (Annual Percentage Yield). To start the lending process on any of these platforms, you must deposit collateral to access the crypto loan.
How Does Crypto Lending Work?
These crypto lending platforms allow investors to lend crypto to earn interest in the form of rewards and borrow a loan against the deposited crypto assets. Back in 2020, these lending platforms became popular and have since accumulated a net worth of billions in total value locked on numerous platforms.
The deposit accounts operate in the same way as a conventional bank account. After depositing the crypto, the lending platform pays a percentage of interest (depending on the crypto deposited and the platform used).
Furthermore, crypto loans are given as collateralized lending products. However, the user must deposit a minimum of 100% (or more, depending on the lender) in crypto collateral to borrow the digital currency or cash.
The interest rates depend on the platform you use. And don’t forget the monthly payments you will have to make. But the loan period can be as short as a week and go up to almost 180 days. The interest rate charged can be hourly or an indefinite line of credit, depending on the lender.
The general steps for the crypto lending process are as follows:
- The borrower (or 3rd party) visits a Decentralized or Centralized platform (2nd party) to request crypto or cash loan.
- The borrower stakes crypto collateral after the platform accepts the loan request. The borrower can’t access or withdraw the stakes until they return the loan amount.
- The lender (1st party) will fund the required loan through the platform. This hidden process isn’t visible to investors.
- In exchange, the investors will receive regular interest as payments on the loan the platform funded on their behalf.
- The borrower will receive the crypto collateral they deposited only after paying off the loan.
How To Lend Your Crypto Assets?
The crypto lending practice is greatly appreciated as it generates profit in return. Ensure that you find a trustworthy platform like SmartCredit.io to lend your cryptocurrency. Also, determine the kind of exchange you prefer – flexible or fixed?
Make sure you know the crypto coins you want to lend. Do so by thoroughly researching their trends and conditions in the crypto market. This will allow you to calculate the returns on said coins. And the last question – are you willing to tolerate the risks involved?
Conclusion
Crypto lending is an appreciated way of lending your idle digital assets to earn interest. If you aren’t willing to sell them, you can generate some value through this technique and make extra income.
