Borrowing against your crypto asset is possible. However, it is a risky option because of how unstable the crypto market can be. Nevertheless, most people that are into crypto are always thinking of ways to make profits. One way to achieve that is through crypto lending.
What Is Crypto Lending?
Crypto lending is a type of decentralized finance (DeFi) that allows investors to lend their digital currencies to different borrowers. This way, they will get "crypto dividends". Many platforms are into crypto lending. Aside from cryptos, many of these platforms accept stablecoins.
It is no secret that cryptocurrency is increasingly becoming more popular as a payment method. It can be a great investment opportunity when done right as well. Your digital assets can grow in value while you keep them without selling. This is exactly what crypto lending allows you to do.
How Crypto Lending Works
Crypto lending works through a third party that connects borrowers with lenders. The lenders are the 1st party involved. They may be crypto fans who want the output of their assets to grow or people who hold onto their digital assets waiting for a boost in value. The crypto lending platform is the 2nd party. It is with them that the borrowing and lending transaction takes place.
On the other hand, the 3rd party in the process is the borrowers. They are the ones who will receive the funds. A 3rd party could be a person or business in need of funding. The crypto lending process takes place in these few steps:
The borrower requests a crypto loan from a platform.
The borrower stakes crypto collateral immediately after the loan request is approved by the platform. The borrower will not be able to get back the stakes until he refunds the entire loan.
Making use of the platform, the loan will then be automatically funded by the lenders. It is a process that cannot be seen by investors.
Regular interest payments will be made to investors.
The borrower will then be able to get back the crypto collateral after the loan is paid off.
How to Borrow Cryptocurrency
You have to choose the right platform before borrowing cryptocurrency. There are many available platforms available for borrowing and you must find one that is trustworthy first. After getting a reliable platform, you need to check if you can borrow the type of crypto you want. This is important because not all crypto is available on every platform.
Furthermore, you should find out the yearly returns on the crypto you will be lending. It is easier to take crypto loans as compared to traditional loans. The loan amount you get will depend on how much collateral you use.
How to Lend Crypto
You can earn interest in return for lending your cryptocurrency. This is what makes the practice well appreciated. Just like crypto borrowing, you also need to find a platform that is trustworthy to lend your digital assets. Then you have to think of the exchange you want. This can respectively be a fixed or flexible exchange.
Thereafter, you need to determine the coins that you want to lend. This depends on how well you tolerate risks, the returns you desire, and the conditions of the market. You will stake collateral as soon as you give a crypto loan.
You will then wait for the loan to be funded by investors. The investors will receive interest, and the crypto collateral is returned once the borrower pays back the loan.
Crypto lending is one of the ways you can earn some interest with cryptocurrency. This is good if you do not have plans of selling the crypto in your wallet. This way, you can get additional value in return for your digital currencies.
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