Beginners Guide to Crypto Lending: The Basics

The banking system has long been a catalyst for economic growth, especially in the second half of the 20th and beginning of the 21st century. Nothing helps grow a country’s economy like giving an aspiring skilled citizen a loan to start a business, make their own money, and create jobs for others.  

Many crypto lending platforms have unbelievable interest rates. There are three to five to even ten percent APY (Annual Percentage Yield) on some platforms with specific coins. The interest rates in most developed countries cannot hold a candle to some DeFi lending platforms, so it is no wonder why so many are interested in putting their crypto holding to good use. 

If you are a HODLer or a holder who would rather keep their crypto holdings locked away rather than sell them at the nearest profit opportunity, then earning interest is something that would definitely interest you. There are two main ways in which you can generate profits while HODLing your cryptos. 

Of course, there is more to it than plugging in your crypto holdings and watching your money grow. Well, it is, but there are risks involved. 

The Difference Between Crypto Lending and Staking

In crypto lending, you put your crypto holdings into a third party, and it links you to a borrower. The borrower must deposit collateral to be able to borrow, and after a set amount of time, you get your money back with interest. 

On the other hand, proof-of-stake is another newer way of earning rewards in the form of your chosen coin in a more stable and secure way, hence why only newer coins are a part of it.  

Currently, some of the most popular coins to stake with the highest rates of return are: 

  • Ethereum 2.0 (ETH) 
  • Binance (BNB) 
  • Cardano (ADA) 
  • Hydra (HYDRA) 
  • BitDAO (BIT) 

Staking is generally a low-risk and more environmentally friendly way of participating in a blockchain. You put some in and get some out. Your only risk is if the entire token crashes in value, and you can’t take out your holdings at any time since staking involves locking your cryptos into place for a set time.  

The riskier but more profitable option is crypto-lending, and there are many sites that mediate these deals between lender and buyer.  

There are quite a few factors to consider when choosing a crypto lending platform. 

  • The platform’s trustworthiness, track record, and reputation 
  • Interest rates and APY of a particular coin or platform 
  • Deposit minimum or maximum amount  
  • Fees and other costs may differ from one platform to another 
  • Lending duration limits, if any, fixed or not 
  • Collateral amounts for getting loans 

Crypto lending may very well be the common man’s entryway into the banking sector. Now, everyday crypto investors can put their spare holdings or investment money into good use by lending them out to buyers. At such a scale, economic growth may see skyrocketing progress as even the acting of lending and borrowing becomes decentralized.