Crypto lending is one way to lend, crypto lending is a process of depositing cryptocurrency that is lent to borrowers in exchange for interest. Read more about crypto loans below!
What is Crypto Lending?
Crypto lending is defined as crypto lending. Crypto lending is the process of depositing cryptocurrency that is lent to borrowers in exchange for regular interest payments. Payments are made in the form of cryptocurrency which is usually deposited and added on a daily, weekly, or monthly basis. There are two main types of crypto lending platforms: decentralized crypto lenders and centralized crypto lenders. Both offer access to high interest rates, sometimes up to 20% annual percentage yield (APY), and both typically require borrowers to deposit collateral in order to access crypto loans. Cryptocurrency lending platforms offer opportunities for investors to borrow against stored crypto assets and the ability to lend crypto to earn interest in the form of crypto rewards. The lending platform became popular in 2020 and has since grown to billions of total value locked on various platforms. Crypto loans have two components: interest-earning deposits and crypto loans. A deposit account functions similarly to a bank account. Users deposit cryptocurrencies, and the lending platform pays interest, up to 8% APY (depending on the platform and cryptocurrency). The platform may use the deposited funds to lend to borrowers or for other investment purposes. Crypto loans are typically offered as collateralized loan products, requiring users to deposit a minimum of 100% (and up to 150%, depending on the lender) in crypto collateral in order to borrow cash or cryptocurrency. Like traditional loans, interest rates vary by platform and require monthly payments. Unlike traditional loans, loan terms for cryptocurrencies can be as short as seven days and can be as high as 180 days and charge an hourly interest rate, such as Binance. Then there are other lenders that offer unlimited credit, such as Nexo, which offers a 0% APR. There are two sides to crypto lending: investing in crypto-backed loans, and borrowing against your crypto assets:
- Invest to earn income. With this option, you lend cryptocurrency or fiat to get a loan repayment — similar to a high-yield savings account. You can do this by opening a crypto savings account or by lending funds directly to individuals on peer-to-peer lending platforms.
- Borrowing for cash needs. With this option, you borrow against your crypto with a crypto-backed loan that pays out in fiat or stablecoins. No credit check is required, and most loans are processed the same day your crypto collateral is received.
Crypto Lending for Borrowers and Investors
In crypto lending, there are elements of borrowers and investors, and there are benefits to each of these elements, namely:
For investors: Crypto lending
Investing in crypto is more than just buying and holding on or as some say, "saving" for future profits. You can also earn passive income in your crypto by investing in crypto lending. Here are some of the most popular lending products available to crypto lending lenders.
For borrowers: Crypto Lending
Crypto loans offer a way to leverage the value of your crypto without having to sell it, incurring capital gains taxes and losing appreciation value in the future. With crypto lending, you can pledge your crypto in exchange for a loan in fiat currencies such as US dollars or stablecoins. To get crypto lending, you need to promise more crypto than the loan value. This is called the loan-to-value ratio — or LTV . For example, if a platform requires 50% LTV for a loan, you should pledge $2,000 worth of crypto in exchange for a $1,000 USD loan. Crypto loans are repaid faster than traditional loans. After pledging your collateral, some lenders fund in minutes, but more often, within 24 to 48 hours. You should stay above the value of your collateral when you have a loan. If the price of your crypto drops, you could lose it unless you can add more collateral in a short period of time.
Advantages of Crypto Lending Compared to Other Loans
When compared to other loans, there are advantages if you want to try crypto lending, but behind the advantages there must be disadvantages that are in line with this. The advantages and disadvantages are:
Excess:
1. Capital is easy to reach
Crypto lending is given to anyone who can provide collateral or return funds in the form of a flash loan. These qualities make them easier to obtain than loans from traditional financial institutions, and there is no need for credit checks.
2. Smart contracts manage loans
Smart contracts automate the entire process, making lending and borrowing more efficient and scalable.
3. Simple
To earn passive income with little work. HODLers can put their crypto in a vault and start earning APY without having to manage the loans themselves.
Deficiency
1. High liquidation risk depending on your collateral
Even with highly secured loans, crypto prices can drop suddenly and lead to liquidation.
2. Smart contracts can be vulnerable to attacks
Poorly written code and backdoor exploits can lead to the loss of your loan or collateral funds.
3. Borrowing and borrowing can increase the risk of your portfolio.
While diversifying your portfolio is a good idea, doing so through loans will add extra risk. All of that is an explanation of crypto landing, you can read other articles only in the journal GIC. Not only that, but also read about GIC's latest feature, namely GICVerse only on the GIC website. Don't forget to register and download GIC Mobile Apps on the
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