What is Crypto Lending?
Crypto lending is a form of investment where lenders earn interest for cryptocurrency deposits on blockchain-based platforms. Some platforms also allow you to lend fiat currencies like USD, GBP, and EUR.
Some crypto lending platforms have options for locking up cryptocurrencies which means you cannot withdraw for the agreed period.
You can also borrow other cryptocurrencies based on the value of the cryptocurrencies you lent.
Crypto Lending Rates
Crypto lenders can earn interest with fixed or floating rates for their deposits. Interest is calculated either as Annual Percentage Yield (APY) or Annual Percentage Rate (APR). Some crypto lending platforms offer interest to be earned in cryptocurrencies other than the ones you lent.
Crypto Lending in DeFi
Crypto lending in DeFi is commonly referred to as lending on smart contract based decentralized applications like Aave, dYdX, and SushiSwap. In this sense, DeFi lending is mostly within the Ethereum ecosystem.
Crypto Lending vs Staking
Staking helps blockchain platforms with Proof-of-Stake (PoS) consensus required for recording transactions. Here’s a short comparison of lending and staking:
| Lending | Staking |
|---|---|
| Earn interest | Earn rewards |
| Deposit any cryptocurrency | Deposit mostly cryptocurrency tokens |
| Interest affected by trade volume | Rewards affected by blocks generated |
| May have restrictions on withdrawal | Has penalties like slashing |
| Lending is more accessible | Staking is more accessible on staking pools |
| Taxable | Taxable |
Crypto Lending Risks
Lending cryptocurrencies is not like holding in them a savings account with banks. It can expose you to greater risks since crypto lending platforms are not regulated by any authority or national governments like traditional financial organizations.
Lending on platforms that don’t need collateral from borrowers is highly risky.
Related Terms
Learn More Crypto Terms