Friday, October 22 2021

There are currently numerous asset classes that offer attractive returns. These include cryptocurrencies, stocks, real estate and also P2P loans. However these investment possibilities represent only a cutout of the current possibilities. In particular hybrid products, like crypto lending, open quite exciting investment possibilities. In our lending comparison, we show which providers are really good and how crypto lending becomes a success.

What exactly is crypto lending?

Basically, crypto-lending is similar to the P2P loan approach. Classic P2P platforms bring borrowers and lenders together and work without banks. The same applies to crypto-lending, P2P with cryptocurrencies.

The lender makes its cryptocurrencies available to the market and charges a fixed interest rate. The crypto currencies must be for this on the native Wallet of the platform. During the term of the crypto-credit the lender receives an interest rate on the provided coins or tokens. At the end of the term, the entire investment flows back to the lender. Accordingly, the lender now holds his coins and the interest earned.

Basically, crypto lending is a perfect approach to generate a passive income. However the net yield depends very strongly on the used platform as well as the borrowed cryptocurrency. In contrast to classic lending on the established P2P platforms, the returns are somewhat lower. On average, the returns on our platforms are in the high single-digit percentage range. However, there is also the possibility of earning a higher return. On Crypto.com, for example, investors who lend CROs can expect a very attractive mid double-digit return.

When lending established Coins, for example Bitcoin and Ethereum, the net yield turns out somewhat smaller. Why lending here can still be worthwhile is explained in the following.

You can compare all of our insights with the information on this site on crypto lending.

How does crypto lending differ from normal lending via P2P loans?

The biggest difference is obvious, because while normal lending or P2P business is based on fiat currencies, crypto lending is slightly different. Here, investors must have cryptocurrencies in order to lend them on the market.

In addition, in the lending business with cryptocurrencies, there are not countless types of credit such as real estate financing, consumer loans or corporate loans. Instead, the whole procedure is very standardized, anonymous and fast. Those who have already gained some experience as P2P investors will first have to get used to the new procedure. There is simply no insight into a credit project or the background of the borrower.

Instead, borrowers have to contribute their own assets and deposit them as collateral. If a loan is no longer serviced, these so-called securities can be liquidated to reduce or even compensate for the investor’s loss. Consequently, the entire process is based on user trust.

How does the lending of cryptocurrencies work?

In simple terms, there are exactly three parties interacting with each other when lending cryptocurrencies:

  • The lender or creditor
  • The lender or borrower
  • The technical platform

The lender makes basically its cryptocurrencies available over the technical platform and requires for this a net yield. This varies, as already noted, depending upon cryptocurrency and platform. To the end of the credit period the Coins flow back to the lender together with the contractually defined net yield. From this proven net yield besides a small portion flows to the technical platform, in order to finance their operating cost.

How do investors earn their money with crypto lending?

In the first step one can think now that the borrower or lender sets on exchange rate changes with the price of the cryptocurrency. From this train of thought we can say good-bye however again, because the credit was spent not in a Fiat currency, but in a cryptocurrency. Consequently, it does not matter whether 1 BTC has a price of 12,000 US dollars or even 15,000 US dollars, because the open credit balance is still 1 BTC.

Accordingly, the borrower must use the cryptocurrency to earn a return. Often it is not transparent what the borrower does with the capital – we are talking about a black box. In this case, the lenders must hope that the return achieved is positive and that the own capital flows back. On many platforms, for example, it is not possible to leverage the borrowed assets. In this way, the platforms want to prevent the achievement of a return from turning into speculation. Instead, the capital can be used as collateral. Accordingly, borrowers basically have three options for generating a return:

  • Buy options
  • Sell options
  • Short Cryptocurrencies

On transparent platforms, investors can see a general picture of how the funds are being used. This data is then hashed and made available to the community. In this way, investors can also track whether the returns are being generated. If this is not the case, the risk will of course gradually increase.

What are the risks of crypto lending?

In contrast to classic P2P loans, the loss of the loan is not the top priority. Rather, in some platforms, investors take the risk of placing their own coins and tokens in someone else’s hands. In line with the adage “Not your keys, not your coins”, investors here take a corresponding risk of loss. If there is no security in the form of deposited crypto currencies, the risk increases.

In general, storing one’s own coins on a centralized crypto lending platform is already a risk, since the coins are no longer in the power of disposal at this point in time. If we compare this with the risks of classic lending platforms, there are not many differences, because the invested money is only “safe” when it is back in your account.

However, there are already large communities that have formed around the largest platforms. This means that in case of irregularities you will receive quick updates on networks like Twitter or Telegram. This transparency is also perceived by the providers, so that mistakes were rather rare in the past.

Which crypto lending platforms are really good?

Now we come to our selection of crypto lending platforms. The following platforms offer good returns, a large network and ease of use.

Crypto.com

Our favorite for cryptocurrency lending is Crypto.com. The company has been in existence in its current form since 2018, before which Crypto.com operated under the name Monaco Technologies.

What is especially good about Crypto.com is the simple and good handling of the app. In addition, Crypto.com offers an excellent credit card that provides high cash backs. Depending on the amount of the deposit, the cashback varies between 1 and 5% – even costs for Spotify and Netflix are refundable, if the deposit is large enough.

For crypto-lending, the Crypto Earn and Crypto Credit services are relevant. With Crypto Earn, investors can lend their own crypto and earn a return on investment. Crypto Credit is the corresponding counterpart and is used to lend coins and tokens. On the negative side, Crypto.com is a central platform. Consequently, as an investor you do not own your own crypto currencies. Furthermore, the app does not have a German language. However, it is easy and intuitive to use.

With Crypto.com you can earn up to 8% return on your invested coins if you deposit them for at least three months. With a one-month investment period, interest rates of up to 6% are possible. The flexible investment horizon is rewarded with up to 4%. Stablecoins have a premium of 4 % in each selectable time window. The return is highest when investing in the native currency CRO. For a three-month investment, the return is a full 18% p.a., for a one-month investment it is 16% p.a. and for a flexible investment it is 14% p.a.

A special advantage of Crypto.com is the welcome bonus of $50 in the form of the native currency CRO. If you go through our link and buy an additional 1,000 CRO, you will receive this bonus immediately on your Crypto.com wallet.

BlockFi

Our second recommendation in the field of crypto-lending platforms is BlockFi. BlockFi is a Delaware company based in New Jersey. Investors and investors can take advantage of three services on the platform:

  • Crypto-Interest
  • USD Loans
  • Crypto trade

Of course, the product crypto-interest is particularly exciting. Here investors can invest their BTC, ETH, LTC, USDC, PAX and GUSD and thus earn interest. The interest rates vary between depending on the selected crypto currency and the deposited amount. Interest rates of up to 8.6% per year are possible. The distribution of the interest takes place monthly in a crypto currency, which the investor selects independently. So the generated crypto currencies can obtain an additional net yield by course increases. Alternatively the crypto currencies can be reinvested also directly, in order to profit directly from the compound interest effect.

However the interests are not fixed with BlockFi and are adapted monthly to the current market surrounding field. Consequently investors should adjust themselves to the fact that the interest rates can be lowered in the worst case fast.

Binance

Binance is one of the most popular crypto-exchanges on the market. But there are other services besides trading crypto currencies, such as Binance Savings. Binance Savings is something like a lucrative savings book for crypto currencies.

For this, investors must have compatible cryptocurrencies or buy directly from Binance and then invest via Binance Savings. Binance then lends these cryptocurrencies and pays the investor an attractive interest rate. The interest rates vary for the different cryptocurrencies and are indicated as “Average Annual Return”, as an annual average. However, this value is always based on the interest rate of the last 7 days and is only multiplied by 365. However, this also means that the real return can differ.

It should be emphasized that in addition to the established coins such as Bitcoin or Ethereum, IOTA can also be invested at 1 % with Binance. The highest yield is currently available at ATOM – here it is 3.8 % after all. Even higher interest rates are possible with stablecoins. The current interest rate for tether is 7.2 % per year.

Bitfinex

Finally, we would like to present Bitfinix as a lending platform for crypto currencies. With the help of the so-called Funding Wallet, investors can make their capital available for lending. With Bitfinix the lending of Kryptos is not completely as intuitively possible, as with the other platforms. That is because the Lending orientates itself strongly at the Trading. Accordingly there are order books, which record the offers and inquiries.

Loans run with Bitfinix between 2 and 30 days. All in all, the lending process is very manual on the platform, so we recommend the use of a bot. Especially for this purpose there is also a corresponding interface. The probably best known and simplest Bot for this is Coinlend, a web-based Lendingbot. However, the users have to keep in mind that 5% of the profit is transferred to Coinlend. By the possibility to program own strategies for profit maximization, these costs can compensate the corresponding time expenditure.

Who decides for the offer of Bitfinex, gets an above average net yield of more than 10% per year. At least 50 US Dollar must be assigned however. The “Autorenew” function, which automatically reinvests interest income from 30 US dollars upwards, is also worthy of mention. Interest is paid out daily at 1:30 am.

Conclusion: Crypto Lending is a sensible diversification

Crypto lending is a very interesting way to earn an additional return with your coins and tokens. However, investors should always rely on transparent and established platforms to ensure a good flow of information about current developments. The platforms we have presented are all convincing with a very good offer, attractive lending yields and a well-known brand. Those who have no experience with lending crypto currencies should start with a smaller investment in the first step.

The best offer currently is Crypto.com, because in addition to the interesting returns there is a welcome bonus for new customers, if they hold 1,000 CRO. The credit card, which offers an above-average high cashback, is also particularly exciting.

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