Crypto holders usually think keeping their crypto holdings in their wallets is best until they find the most profitable investment option. But many investors don’t like this idea of keeping their assets idle. So, what’s their best option?
Crypto lending platforms introduce the concept of earning interest on your crypto investments, which is a dream come true for any investor. Isn't it exciting?
In this guide, we’ve covered everything from A to Z about the Crypto lending platform and its functions, so let's dive straight into it.
What is the Concept of Crypto Lending?
Crypto lending falls under the Decentralised finance service, and it’s much similar to the traditional lending concept. Crypto investors earn internet against their crypto assets like the conventional banking system.
With crypto trading platforms, lenders can earn passive income instead of keeping their earnings idle.
To give you a clear idea of how crypto lending works, suppose you have 10 bitcoins. Holding these bitcoins on crypto lending platforms can earn you weekly to monthly interest. Wonderful, right? The interest rate differs on every other lending platform. Some offer 5% to 7%, and some even offer up to 17% of interest.
Besides the lending process, these platforms also come in handy with borrowing.
Similar to the conventional lending procedure, wherein the borrower is required to provide collateral as a prerequisite for obtaining a loan. With the crypto lending platform, borrower has to stake up their crypto investment to get a loan. However, if they fail to repay the loan, the investors can sell the borrower’s assets to recover the loss.
How do Crypto Lending Platforms Work?
Crypto lending platforms act as a third party or, in simple words as a middleman between the lender and the borrower. These platforms often require the help of API software within their working model to access the key factors. User profiles, analytics, loan execution, investment management, interest calculation, and payments are some factors of API software.
With the help of this data, crypto lending platforms assist both the borrower and lender in their trading activities. These platforms set an interest rate for both borrowing and lending parties, which aligns with their profit margin.
Every platform has its interest policy, depending on what lending platform you’re opting for. With the ROI (return on investment) comes the risk, so do your research before opting for any platform.
How to Invest in Crypto Landing?
Like investing in any other field, investing in crypto landing also requires a decent amount of research.
Firstly, you need to choose a trustworthy platform for your crypto trading. There are two types of crypto lending, centralised and decentralised.
Centralised lending involves the 3rd party which handles all your trading activities. While with decentralised platforms, all the trading is controlled by professionals.
Besides decentralised and centralised platforms, you also need to choose between manual and automated crypto-lending platforms. The most recommended one is the automated platform, as it’s easier to navigate.
Ensure you review all the relevant information and the interest rate before deciding on the lending platform. It has to be relaible and flexible with the interest rate to get the best service for your lending activities.
Types of Crypto Loans
There are two major types of Crypto loans:
Collateralised Loans
Collateralised loans are the most usual type of crypto loan. Borrowers have to mortgage their crypto holdings to secure the loan. In case of failing to pay the loan, investors can liquidy the digital assets to make up for the loss.
Non-Collateralised Loans
With this type, the borrower doesn’t have to mortgage their digital assets to secure the loan. Instead, the lender determines if the borrower is trustworthy to secure the loan based on the borrower’s income, goodwill, and overall background.
Is Crypto Lending Worth it?
Crypto lending has pros for both borrowers and lenders. Such as:
Passive Income
With the lending platforms, crypto investors can earn passive income through interest on their crypto holdings. It’s an amazing opportunity for investors who don’t fancy keeping their investments to stay idle in their digital wallets.
Speedy and Flexible
Unlike traditional borrowing, borrowers can get speedy access to the loan with lending platforms. These platforms are also flexible regarding repayment options and granting specific period loans.
Affordable Interest Rates
Crypto lending has a favorable interest rate compared to traditional ones. As the crypto lending platforms are wholly operated digitally, it cuts various costs resulting in offering the best interest rate to their lenders.
Risk Minimisation
To minimise the risk factor, platforms offer lenders to offer their investments to various borrowers, diversifying their lending portfolio and lessening the risk ratio. This encourages lenders to invest more without any worry.
Transparency
These lending platforms operate on blockchain technology, offering transparent transactions to their users. The borrower and lender can simply access their trade activities without any threat to their privacy. The usual traditional lending system doesn't offer a secure and transparent environment as crypto lending platforms.
Drawbacks of Lending Platforms
Along with the benefits of the lending platforms, you should also be aware of the drawbacks such as:
Unsecured Loans
Unlike traditional loans that come with an insurance factor, these platforms don’t offer any insurance to investors, which is not a good impression.
Technical Complexity
A decent amount of crypto knowledge is required for trading on these platforms, which’s not everyone’s cup of tea.
Conclusion
As the crypto industry keeps on growing, crypto lending platforms hold the potential to become mainstream soon enough. These platforms offer flexibility and secure crypto trading for both borrowers and lenders.
Traditional institutes are exploring ways to enter this digital lending system to boost their market.
With blockchain technology, investors can get the most out of their crypto holdings. Factors like diverse portfolios, transparency, speedy loans, flexible payments, and favorable interest rates.
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