Crypto lending

Crypto lending is the process of depositing cryptocurrency that is lent out to borrowers in return for regular interest payments. Payments are made in the form of the cryptocurrency that is deposited typically and compounded 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 per cent annual percentage yield (APY), and both typically require borrowers to deposit collateral to access a crypto loan.

Cryptocurrency lending platforms offer opportunities for investors to borrow against deposited crypto assets and the ability to lend out crypto to earn interest in the form of crypto rewards. Lending platforms became popular in 2020 and have since grown to billions in total value locked on various platforms. Crypto lending has two components: deposits that earn interest and cryptocurrency loans. Deposit accounts function similarly to a bank account. Users deposit cryptocurrency, and the lending platform pays

interest, up to 8 per cent APY (depending on the platform and the cryptocurrency). The platform can use deposited funds to lend out to borrowers or for other investment purposes.

Crypto loans are typically offered as collateralized lending products, requiring users to deposit from a minimum of 100 per cent (and up to 150 per cent, depending on the lender) in crypto collateral to borrow cash or cryptocurrency.

Like traditional loans, the interest rates vary by platform and require monthly payments. Unlike traditional loans, the loan terms for cryptocurrency can be as short as seven days and may go up to 180 days and charge an hourly interest rate, like Binance. Then there are other lenders who offer an indefinite line of credit instead, like Nexo, which offers 0 per cent APR.

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